The de-escalation of the conflict in the Middle East and the World Cup helped the UK economy shine in the second quarter. However, these temporary tailwinds have faded. Let’s explore the outlook and develop a trading plan for the GBP/USD.
The article covers the following subjects:
Major Takeaways
- UK GDP is starting the year on a strong note.
- The pound is being sold on the news after being bought on the rumors.
- The BoE is unlikely to raise rates.
- Short positions on the GBP/USD can be opened if the price fails to return above 1.351.
Weekly Fundamental Forecast for Pound Sterling
Buy the rumor, sell the news. Expectations of slowing U.S. inflation and strong economic data from the UK pushed GBP/USD to a monthly high. The figures did indeed live up to expectations: US consumer price inflation fell to 3.4%, while core inflation declined to 2.5%. Meanwhile, UK GDP accelerated to 0.3% in June, potentially putting the British economy on track to record the fastest growth among the G10 economies in the first half of the year. Yet optimism is giving way to caution.
In recent years, Britain has established a pattern of strong first-half economic performance followed by a weaker second half. So don’t be misled by GDP growth of 0.6% in the first quarter and 0.4% in the second. The second half of the year is now underway, and it has historically brought more disappointments than pleasant surprises.
UK GDP Growth
Source: Bloomberg.
Investors are well aware that the main drivers of economic growth could fade in the near future. This applies first and foremost to the boost from the World Cup and the easing of concerns among British manufacturers about the Middle East conflict following the US-Iran deal in June. An unusually hot summer also provided a temporary boost to GDP by increasing demand for services.
Meanwhile, a prolonged blockade of the Strait of Hormuz would pose a serious risk to the UK economy. According to Treasury forecasts, growth could slow to 0.9% in 2026 and 0.3% in 2027 if the world’s main oil supply route remains closed through the end of this year. These figures are significantly below the 1.1% and 1.6% growth rates projected by the Office for Budget Responsibility.
Forecast for UK GDP
Source: Bloomberg.
Against this backdrop, the futures market’s reaction to the strong UK GDP data for the second quarter is telling. Expectations for Bank of England monetary tightening have remained unchanged. Investors are pricing in one rate hike by December 2026 and a second by September 2027. According to ING, even these expectations may be overly optimistic. Once the market recognizes this, the sell-off in the pound could intensify.
The pound could face further pressure ahead of the budget announcement by Andy Burnham’s team. For now, investors have given the new prime minister some leeway, but they expect a draft in October. Growing concerns over the budget could weigh on the pound in September.
For now, however, the pound is being sold on the facts. The prolonged pause by both the Fed and the Bank of England allows geopolitics to take center stage, while the persistence of the Middle East conflict is supporting the US dollar.
Weekly Trading Plan for GBP/USD
If the GBP/USD fails to reclaim the 1.351 resistance level in the near term, the downtrend is likely to continue. Selling the pound could become an attractive strategy, particularly if the Brent rally persists.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of GBPUSD in real time mode
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