Pound Dips On Weak Labor Data. Forecast as of 17.07.2025
The correction of the British pound may end for reasons beyond its control. Despite fiscal problems and a cooling British economy, correction in the GBPUSD pair is gradually fading. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- UK GDP has contracted, and unemployment is rising.
- The Bank of England may cut the repo rate in August.
- Capital outflows from the US and hedging are weighing on the US dollar.
- Long trades can be considered if the GBPUSD pair settles above 1.3395.
Weekly Fundamental Forecast for Pound Sterling
If you want to know where a currency is heading, look at how it reacts to macroeconomic statistics. The pound is being sold on the rise, not bought on the decline. A second consecutive decline in UK GDP in May, coupled with a cooling labor market, led to a nine-session losing streak for the GBPUSD pair, the worst result in a decade. At the same time, accelerating inflation and positive retail sales data did not help the pound sterling. Is the correction continuing?
UK Economy’s Structure
Source: Bloomberg.
Assuming all other conditions are equal, the exchange rate depends on the central bank’s monetary policy. Notably, current conditions are far from ideal. Donald Trump’s tariffs and the fiscal turmoil in the UK are among the deteriorating factors. The market is still digesting these factors, while investors are turning to more straightforward drivers. In particular, how will the Bank of England’s cycle of monetary easing continue?
The markets are looking for signals from the UK central bank. In this regard, Andrew Bailey’s comments about the BoE’s readiness to cut rates aggressively if the labor market cools have made investors frown. Meanwhile, the market disregarded the acceleration in consumer prices from 3.4% to 3.6%, core inflation from 3.5% to 3.7% YoY, and retail sales growth of 0.4% MoM in April.
On the other hand, the rise in unemployment to 4.7%, the highest level in four years, amid job cuts and slowing average wages, propelled GBPUSD bears to drag the quotes lower.
UK Unemployment Rate
Source: Bloomberg.
Notably, the derivatives market’s expectations have remained virtually unchanged, suggesting an 80% probability of a sharp cut in the repo rate in August and predicting a 50 bp cut in 2025 and a 75 bp cut by April 2026.
Signs of weakness in the British economy, coupled with stickier inflation and growing risks to finances, have prompted Credit Agricole to lower its forecast for the GBPUSD from 1.4 to 1.37 by the end of this year. Risk reversals signal the most bearish sentiment in the derivatives market for the pound since February.
With the Bank of England set to continue its cycle of monetary expansion and the Fed hesitating, the pound sterling should fall against the US dollar. However, every cloud has a silver lining. Donald Trump’s outbursts against Jerome Powell, which are triggering market turmoil, may harm the greenback significantly. Capital outflows from the US and increased demand for currency hedging could support GBPUSD quotes.
Weekly GBPUSD Trading Plan
It is dangerous to catch falling knives, so it would be better to buy the British currency at 1.3475. However, a more aggressive strategy views consolidation of the GBPUSD pair above 1.3395 as a sign of bearish weakness and suggests buying the pair at market rates.
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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