Pound Lures Bears Into Trap. Forecast as of 21.08.2025
The UK economy is the fastest-growing among its G7 counterparts, with inflation at an 18-month high and no expectations of a rate cut. Nevertheless, the GBPUSD pair is falling. Why? Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The UK is the top G7 economy in the second quarter.
- The chances of the BoE cutting its repo rate are slim.
- The correction in the GBPUSD is linked to the US dollar.
- The pound can be purchased on a rebound from 1.339 and 1.329.
Weekly Fundamental Forecast for Pound Sterling
A robust economy fosters the value of a nation’s currency. The UK economy demonstrated the fastest growth among the G7 countries in the second quarter, recovering from the pandemic at a rate that surpassed initial expectations. This is particularly notable in light of the recent acceleration in inflation, which has reached an 18-month high. These developments have fueled speculation among investors that the Bank of England may not reduce its repo rate even once in 2025. However, the GBPUSD pair has declined in four of the last five trading days. It was only due to Donald Trump’s recent comments regarding the Fed that allowed bulls to push the quotes higher.
Performance of G7 Economies
Source: Bloomberg.
Thanks to the continued 90-day delay on tariffs, strong US imports, a robust services sector, and low 10% tariffs, the UK economy almost doubled the growth rates of the US and Canada in April–June. The UK labor market proved stronger than expected, pushing consumer prices up to an 18-month high of 3.8% in July.
As a result, the derivatives market abandoned the idea of a sharp 25 bp cut in the repo rate by the end of 2025. Inflation in the UK is higher than in the US, forcing the Bank of England to be extra cautious. Nevertheless, the GBPUSD is correcting within a global upward trend.
Inflation in UK and US
Source: Bloomberg.
In fact, the US dollar is strengthening not only against the pound, but also against other major world currencies due to investor doubts about the Fed’s aggressive reduction of the federal funds rate, a decline in demand for hedging currency risks associated with US assets held by non-residents, and continued high demand for US Treasuries from other countries. The fears of GBPUSD bears did not materialize, and they launched a counterattack.
BoE and Fed Interest Rates
Source: Bloomberg.
Nevertheless, the upward trend remains intact. The Bank of England may put an end to its cycle of monetary expansion, which will keep interest rates high and encourage capital inflows into the UK market. Thanks to reduced trade uncertainty and low tariffs, UK GDP will continue to post impressive figures. The same cannot be said about its US counterpart.
Sooner or later, Donald Trump’s anti-immigration policy and massive government cuts will cause the US labor market to freeze, forcing the Fed to cut the federal funds rate aggressively. As a result, diverging economic growth and monetary policy will likely push the GBPUSD exchange rate up to 1.4.
Weekly GBPUSD Trading Plan
The upward trend for the pound against the US dollar will resume. The current pullback provides an opportunity to form or increase long trades on the GBPUSD on a rebound from the support level of 1.339 and 1.329, or if the price breaks through the resistance level of 1.352.
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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