**GBP/USD Weekly Forecast: Weakening Pound as Bank of England Rate Cut Looms**
*Original article written by Yohay Elam — ForexCrunch.com*
The British pound continues to face headwinds as markets increasingly price in a Bank of England (BoE) rate cut in the near future. The GBP/USD currency pair remained on the defensive during the past week, weighed down by cooling UK inflation, dovish tone from central bank officials, and strong US economic data that favored the US dollar. As the BoE prepares for its upcoming monetary policy meeting, concerns are mounting over growth prospects in the UK and the likelihood of a shift towards a more accommodative stance.
This article breaks down the key drivers behind the pound’s weakness, recent economic developments in both the UK and US, and what traders can expect in the coming week.
## GBP/USD Price Overview
The GBP/USD currency pair slipped below multiple support levels last week, ending the week trading around the 1.2700 handle. The drop in value reflects growing concerns over the UK’s economic outlook amid rising expectations that the BoE will begin cutting interest rates, possibly as early as its next policy meeting.
After having breached the 1.2800 and then 1.2750 levels following softer-than-expected data, the pair found some support near the 1.2630–1.2650 zone. However, with persistent dollar strength and dovish BoE speculation, pressure remains firmly to the downside.
## Key Factors Driving GBP/USD
### 1. Slowing UK Inflation Increases Odds of Rate Cuts
UK inflation showed further signs of cooling, with the June CPI data revealing:
– Headline CPI fell to 2.0% year-on-year (YoY), down from 2.3% in May.
– Core CPI, which excludes volatile items such as food and energy, also fell more than expected to 3.5% YoY.
These readings indicated that inflation has returned to near target levels, opening the door for rate cuts after the BoE held interest rates steady at 5.25% since August 2023.
The central bank’s primary concern until now has been wage growth and stubborn service inflation. However, with both metrics finally declining, the BoE is now under increasing pressure to adjust its policy in order to support the slowing economy.
Governor Andrew Bailey recently stated that the UK is getting closer to adjusting monetary policy if inflation meets the Bank’s expectations. This dovish stance contrasts with the Federal Reserve’s ongoing caution on rate cuts.
### 2. Hawkish Fed Commentary Supports USD
Across the Atlantic, the US economy continues to deliver stronger data, giving the US dollar a relative advantage. Recent data points include:
– The US ISM Services PMI inched up to 53.9 in June, beating expectations.
– Non-farm payrolls and jobless claims remained robust, indicating a strong labor market.
– Core PCE inflation, the Fed’s preferred inflation measure, held firm at 2.6% YoY, suggesting persistent price pressures.
Consequently, several Federal Reserve officials pushed back against premature rate cut speculation. Minneapolis Fed President Neel Kashkari and Fed Chair Jerome Powell both emphasized the need for more evidence that inflation is sustainably moving towards the 2% target.
Markets are now pricing in just one Fed rate cut in late 2024, compared to multiple cuts expected earlier this year. This shift in expectations is keeping US yields elevated and supporting the dollar, making it more difficult for the pound to gain traction.
### 3. Political Uncertainty in the UK
Though the general election in July resulted in a clear Labour Party victory, some uncertainty still lingers regarding the economic policies of the new government, particularly around fiscal spending and tax policy. While investors welcomed the political stability, market participants are now watching closely for key budgetary announcements and policy proposals that could impact growth and inflation.
Chancellor Rachel Reeves is expected to provide further
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