The GBP/USD pair faces mounting pressure, with growing expectations that the Bank of England will be compelled to reduce borrowing costs due to persistent economic challenges in the UK. At the same time, soft inflation data from the US continues to reinforce speculation that the Federal Reserve may implement at least one rate cut this year. As market participants turn their attention to upcoming economic reports, all eyes are on the US retail sales figures for further clues on the Fed’s policy direction.
The UK’s latest GDP report, released Thursday, showed a modest 0.1% growth in the economy—falling short of the 0.2% forecast. This weak performance has sparked concerns about the country’s economic trajectory, raising the likelihood that the Bank of England may take action to cut interest rates. In response, the British pound weakened. However, there was a silver lining as UK Treasury yields fell, reflecting a more favorable outlook for the country’s finances following a softer-than-expected inflation report.
Across the Atlantic, the US dollar remained subdued after Wednesday’s release of softer-than-expected core inflation data. The core Consumer Price Index (CPI) rose by just 0.2%, below the anticipated 0.3%, providing further justification for market expectations of a rate reduction. Overall, the inflation figures aligned with market projections, solidifying bets that the Fed may soon move to ease monetary policy.
Looking ahead, investors are eagerly awaiting the release of US retail sales data, which will offer fresh insights into consumer spending trends. A strong report could dampen speculation of imminent rate cuts, potentially supporting the dollar. On the other hand, a disappointing result would likely reinforce the case for additional Fed rate reductions, putting further downward pressure on the US currency.
Related topics:
US Dollar Strengthens, Weighs on EUR, GBP, and Commodities
Strong US Data Pushes Fed Rate Cuts Further Out, Yields Rise
