UK GDP decline causes 0.59% drop in GBP/USD, affecting Bank of England’s policies

    by VT Markets
    /
    Jul 12, 2025
    The GBP/USD pair has fallen by over 0.59% because of disappointing UK GDP numbers. Concerns about further easing from the Bank of England and an escalating trade war have boosted the US Dollar, leading to GBP/USD trading at 1.3504. Pound Sterling is facing pressure after weak UK GDP and factory data for May. The UK economy shrank by 0.1% month-on-month, while forecasts had expected a 0.1% growth, according to the Office for National Statistics.

    GBP/USD Downward Trend

    GBP/USD has been in a downward trend for six days, trading around 1.3560 in Asian markets on Friday. The US Dollar is gaining from new hints about monetary policy from Federal Reserve officials amid increasing economic concerns, as traders await upcoming UK GDP information. EUR/USD is below 1.1700 due to diminished prospects for an EU-US trade deal and strong demand for the US Dollar. At the same time, Bitcoin’s recent record high has sparked interest in meme coins like Bonk, Dogewithat, and Floki, while gold is approaching $3,360 on safe-haven demand. The GBP/USD pair’s initial decline, driven mainly by weak UK economic data, highlights growing uncertainty in short-term positioning. A drop of 0.59% shows how the market reacted to a 0.1% monthly GDP contraction, which goes against widespread expectations of growth. This isn’t just about numbers; it also shows weaker performance in the country’s industrial output, particularly in manufacturing. The market is shifting away from the Pound as doubts increase about when the Bank of England might ease policy. A weaker growth outlook often leads to speculation that the central bank might pause or reverse interest rate hikes to prevent worsening the slowdown. McAndrew from the ONS noted that surprises in manufacturing weakness were significant—not just short-term changes but ongoing signs of struggles with both demand and costs. On the flip side, the Dollar is gaining support, not only from the weak UK economy but also from strong statements by Federal Reserve members. Upcoming economic signals from the US, though potentially mixed, are now closely watched. The ongoing core inflationary pressure in US data keeps investors leaning toward the Dollar, especially when risk-averse sentiment returns.

    Dollar Support Factors

    The GBP/USD pair has been under pressure for nearly a week, trading in lower territory around 1.3560. There seems to be little interest in testing higher levels unless the outlook for UK growth improves or global tensions ease. Any changes in risk flows, particularly regarding trade policies or geopolitical events, will likely keep support for the Dollar intact. In the broader foreign exchange market, EUR/USD has slipped below 1.1700 without benefiting from any weakness in US domestic data. This is largely due to fading hopes for resolving EU-US trade disputes and a lack of strong domestic drivers to attract flows into the Euro. This situation leaves it vulnerable to further Dollar strength, similar to the trends seen with the Pound. Outside of foreign exchange, the momentum in Bitcoin, which has reached record highs, has rekindled interest in speculative assets, especially lower-value cryptocurrencies. Gains in tokens like Dogewithat and Floki remind us how easily liquidity chases volatility when risk sentiment turns more positive. However, not all flows are chasing risk; gold moving towards $3,360 indicates growing interest in traditional safe havens, particularly as investors ponder central bank policy uncertainty and long-term yield changes. The Dollar’s momentum has been supported by reliable data from the US economy, combined with hesitations elsewhere. In the upcoming sessions, the focus should remain on key figures from major economies and insights from central bank announcements and inflation reports. These will influence how quickly the Bank of England and the Fed might act on interest rates. While daily fluctuations may spike around events, we are currently in a phase where currency direction is influenced less by single data points and more by shifts in economic expectations. Therefore, trades should focus on setups with strong conviction and clear exit points, as surprises can quickly erase gains during low liquidity periods. Stay alert for key data releases and policy updates, as these will add volatility not just for GBP/USD but also for strategies involving EUR and JPY. Create your live VT Markets account and start trading now.

    here to set up a live account on VT Markets now

    see more

    Back To Top
    Chatbots