**GBP/USD Weekly Forecast: Sterling Slides as Bank of England Rate Cut Looms**
*Original article by Yohay Elam, Forex Crunch*
The British pound came under pressure last week, continuing its downward trend against the U.S. dollar as markets increasingly price in the likelihood of a Bank of England (BoE) rate cut. Against the backdrop of mixed economic data from the UK and strong expectations for a dovish policy shift, GBP/USD fell to its lowest levels in months, with bears firmly in control.
This article examines the key drivers behind Sterling’s weakness, what to expect from the upcoming BoE policy meeting, and how economic indicators on both sides of the Atlantic are shaping the trajectory of GBP/USD.
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## GBP/USD Weekly Performance Overview
GBP/USD started last week above the 1.2850 level but failed to hold ground as momentum shifted in favor of the greenback. The pair shed over 100 pips during the course of the week, closing near the 1.2700 support zone.
– Weekly high: 1.2890
– Weekly low: 1.2665
– Closing level: Approximately 1.2725
The pair was weighed down largely by BoE policy expectations and a stronger U.S. dollar, which continued to benefit from persistent economic strength and delayed expectations for Federal Reserve rate cuts.
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## Bank of England: A Rate Cut on the Horizon
Market sentiment around the BoE’s next move has shifted significantly over the past few weeks. As inflation trends lower and UK economic activity shows signs of weakness, investors are increasingly betting on a rate cut, with many analysts forecasting that it could come as early as the central bank’s next meeting.
### Key Highlights
– UK inflation has continued to decelerate in recent months, with the Consumer Price Index (CPI) falling closer to the BoE’s 2% target.
– Real wage growth has started to slow, while retail sales and other consumer activity indicators reflect softening demand.
– The interest rate differential between the UK and US is shrinking as markets begin to price in a more dovish tone from the BoE, whereas the Fed remains cautious on cuts due to sticky inflation.
BoE Governor Andrew Bailey and other policymakers have acknowledged the progress on inflation but remain cautious. Still, market instruments such as overnight index swaps suggest a cut is more likely than not.
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## UK Economic Data: A Mixed Picture
Recent data from the UK has offered conflicting signals, making it difficult for the BoE to strike a confident policy tone. Some metrics point toward economic cooling, while others suggest modest resilience.
### Recent UK Data Releases:
1. **GDP Growth**: The UK economy showed slower-than-expected growth, with quarterly GDP expanding just 0.1% in Q2, reflecting fragile consumer and business sentiment.
2. **Inflation**: Headline inflation dropped to 2.2%, closer to the BoE’s 2.0% target, strengthening the case for easing monetary policy.
3. **Retail Sales**: Fell by 0.4% month-over-month in June, reflecting weaker household consumption.
4. **Unemployment Rate**: Rose slightly to 4.3%, suggesting a softening labor market, albeit still relatively tight.
5. **PMI Surveys**: Both the manufacturing and services Purchasing Managers’ Index (PMI) came in below forecasts, indicating potential contraction in both sectors.
The slowing data amplifies the dovish tilt, pushing investor bets toward a policy pivot in the near term.
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## Federal Reserve’s Path Remains Hawkish
While the BoE is turning dovish, the U.S. Federal Reserve continues to resist market pressure to cut rates quickly. Fed Chair Jerome Powell and other key figures have stressed that inflation, although easing, remains above their 2% target and that they need clearer evidence before policymakers act.
### Recent U.S. Economic Indicators:
– **Core PCE Price Index
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