**GBP/USD Weekly Forecast: Dovish BoE Meets US Data Absence, Eyes on US CPI**
*By Yohay Elam, ForexCrunch.com*
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### Overview
The British pound faced a tough trading environment last week as the Bank of England (BoE) surprised markets with an explicit dovish tilt, even as the Federal Reserve’s signals remained subdued in the wake of softer US economic data. GBP/USD slid below key support, only to recover some ground amid shifting global risk sentiment and a lack of compelling US data. As the focus sharpens on the upcoming US Consumer Price Index (CPI) inflation numbers, traders are bracing for what could be a crucial week.
### Last Week Recap: The Pound’s Downturn
The GBP/USD trend over the past week was shaped by two primary forces:
1. **The Bank of England’s Dovish Stance**
2. **Mixed US Macro Data in a Calm Market**
Let’s break these factors down.
#### 1. The Bank of England’s Dovish Tilt
– The BoE kept its benchmark interest rate unchanged, as widely expected, but Governor Andrew Bailey and other committee members signaled a heightened readiness to cut rates.
– Bailey’s message emphasized the risk of overtightening, with concerns about the impact on the UK economy.
– The monetary policy statement highlighted that inflation is expected to return to the 2% target in the second quarter of 2025, earlier than previously projected.
– The bank now expects a slow economic recovery, projecting GDP growth of just 0.2 percent in Q2 2025.
**Market Reaction**
– Sterling slid following the rate decision, as market odds for an August BoE rate cut surged.
– Yields on UK gilts fell, reflecting lowered expectations for monetary tightening.
#### 2. The US Dollar’s Uneven Performance
– In the US, last week’s data calendar was relatively light.
– US jobs data, notably non-farm payrolls, remained solid.
– ISM services PMI, however, came in lower, suggesting some cracks in the US economic resilience.
– The dollar index (DXY) fluctuated, lacking the strong direction seen in previous weeks.
**GBP/USD Movement**
– The pound dropped as low as 1.2445 before recovering toward the mid-1.25s by week’s end.
– The pair was volatile but still displayed a clear bias towards dollar strength, mostly due to the BoE’s dovishness.
### Key Themes Heading Into the New Week
Three major factors are expected to drive GBP/USD in the coming days:
#### 1. US Inflation: The Decisive Factor
– The US CPI report is due midweek, and markets are keenly focused on whether inflationary pressures are cooling off.
– A weaker CPI could reinforce expectations for a September Fed rate cut.
– Conversely, a strong print will fuel renewed dollar strength.
– Core CPI, which strips out food and energy, will command extra attention as the Fed targets underlying inflation.
**Inflation Outcome Scenarios for GBP/USD**
– **Soft CPI Print:** GBP/USD could rally above 1.26 as the dollar sells off.
– **Hot CPI Print:** The pair may test recent lows near 1.2450 or even lower, as traders reduce BoE cut bets less than those for the Fed.
#### 2. The Bank of England: Can the Pound Find Support?
– Now that the BoE has taken a clear dovish shift, rate-cut expectations may become the dominant GBP driver.
– Market-pricing now implies a more than 60% chance of a rate cut as soon as August.
– Market participants will scrutinize upcoming UK labor market data and inflation prints for confirmation.
#### 3. Broader Market Sentiment and Technical Trends
– Risk appetite globally remains sensitive to headlines from the Middle East and ongoing US-China trade tensions.
– As GBP/USD sits just above
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