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GBP/USD Faces Headwinds Amid BoE Uncertainty and Weak Economic..

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GBP/USD Faces Headwinds Amid BoE Uncertainty and Weak Economic Data

The British Pound (GBP) is struggling to find its footing as the odds of a more aggressive policy tightening by the Bank of England (BoE) diminish. This, in turn, is creating headwinds for the GBP/USD pair. Several key factors are impacting the currency's performance:

Economic Contraction: The Office for National Statistics recently reported that the UK's economy contracted by 0.5% in July, the sharpest decline in seven months. This has raised concerns about a potential recession, adding pressure on the BoE to reconsider its rate-hiking cycle.

Labour Market Cooling: Signs of a cooling UK labour market are further complicating the situation. These factors combined are pushing the BoE towards a more cautious approach to interest rate hikes.

Market Expectations: Despite these challenges, markets are still pricing in a higher probability of a 25 basis points rate increase at the upcoming BoE meeting on September 21. Additionally, the odds of another rate hike in November stand at around 30%, with the first rate cut not expected until H2 2024.

US Inflation Data: In contrast to the UK, US consumer inflation figures released on Wednesday suggest that the Federal Reserve (Fed) will maintain its current interest rate levels at the upcoming policy meeting. This has led to fresh US Dollar (USD) selling and provided some support to the GBP/USD pair.

US Inflation Concerns: While the US remains stable, inflation in the country is above the Fed's 2% target. Additionally, rising crude oil prices have fueled concerns about future inflation, potentially prompting the Fed to keep interest rates higher for a longer period. This could limit further USD losses and keep the GBP/USD pair in check.

Upcoming US Data: Traders are now eagerly awaiting key US macroeconomic data, including the Producer Price Index (PPI) and Retail Sales figures. These releases, combined with post-ECB volatility, are likely to influence the GBP/USD pair's direction in the near term.

In conclusion, the GBP/USD pair is facing a complex mix of factors, including economic data, central bank policies, and global economic conditions. The currency pair remains sensitive to shifts in market sentiment and will continue to be closely watched by traders and investors.