**British Pound Forecast: GBP/USD Plunge Hits Six-Month Low as Bank of England Holds Fire**
*By Fawad Razaqzada – Original article sourced from FOREX.com*
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The British pound endured a sharp decline recently, with GBP/USD sliding to a six-month low. The move underscores the increasingly bearish sentiment around sterling in the wake of the Bank of England’s more dovish posturing. As policymakers kept rates on hold and signaled a slower path to easing compared to peers, markets took note. The pound’s performance is now subject to a medley of domestic and external factors, making its near-term direction increasingly uncertain.
This article will delve into the latest developments impacting GBP/USD, explore technical and fundamental drivers, and highlight what traders should watch as we move into the latter part of the year.
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### The Latest Bank of England Decision
The Bank of England (BoE) voted 7-2 to keep its benchmark lending rate at 5.25 percent for a sixth straight meeting. While this decision matched market expectations, it stood in contrast to the European Central Bank, which recently delivered its first rate cut of the cycle, and the U.S. Federal Reserve, which is widely expected to start easing policy in the months ahead.
**Key elements of the BoE meeting included:**
– **Monetary Policy Stance:**
Most members argued that inflation risks remain elevated and emphasized a need for further evidence before cutting rates.
– **Split Votes:**
Two members, Swati Dhingra and Dave Ramsden, voted for an immediate 25-basis-point cut, while the majority favored no change.
– **Guidance:**
The statement acknowledged that inflation is “expected to return to target in the near term” but conveyed uncertainty about the “persistence of domestic inflationary pressures.”
– **Data Dependency:**
The BoE reiterated its commitment to data dependence, watching indicators such as wage growth, services inflation, and labor market conditions closely.
Governor Andrew Bailey expressed that while inflation may fall below 2 percent temporarily, there are concerns about how sticky services price growth and wage inflation will be. This cautionary note appears to have underpinned the BOE’s patience.
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### Market Reaction: Sterling Unravels
Traders reacted harshly to the BoE’s lack of conviction about rate cuts. GBP/USD tumbled, breaking through several layers of support to reach its lowest levels since November of last year.
**Key price action observed:**
– GBP/USD plunged more than 100 pips initially after the announcement, exacerbated by follow-through selling in subsequent sessions.
– The British pound also weakened against other major currencies such as the euro (EUR/GBP) and Japanese yen (GBP/JPY).
– This decline reflects a growing opinion that the UK central bank is behind the curve relative to other developed market peers, leaving sterling exposed as the global rate-cutting cycle accelerates.
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### Why Is Sterling Struggling? The Fundamental Backdrop
Several factors are eroding confidence in the pound at this juncture:
**Diverging Central Bank Policies**
– The European Central Bank delivered its first rate cut in the current cycle; the Federal Reserve is anticipated to follow suit in September or November.
– UK inflation is expected to target 2 percent soon, but concerns around its persistence remain within the BoE.
– As policy easing picks up in Europe and potentially in the U.S., the pound’s yield advantage has started to erode.
**UK Economic Headwinds**
– The UK faces ongoing concerns about weak growth. The first quarter’s GDP figures showed only modest expansion.
– Recent data releases indicate slowing momentum in retail sales, property markets, and consumer confidence.
– Despite low unemployment, job vacancies are falling and wage pressures are showing early signs of abating.
**Political Risk and Fiscal Policy**
– With a UK general election on the horizon, there is heightened uncertainty around fiscal policy and stewardship, which
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