UK GDP contracted for the second consecutive month, elevating the probability of a Bank of England interest rate cut in August to 78%. The GBP/USD declined over 0.59% after unfavourable GDP data, with the pair trading at 1.3504, having previously hit a high of 1.3584.
US President Donald Trump escalated the trade war by imposing 35% tariffs on Canadian goods, with certain exemptions. This led to a decrease in risk appetite and a subsequent rise in the US Dollar.
US Dollar Index Performance
The US Dollar Index increased by 0.26%, standing at 97.83. Meanwhile, ONS data revealed a -0.1% month-on-month GDP contraction in the UK for May, following a -0.3% drop the month before.
The data raised expectations of a rate cut by BoE in August. The prediction for a cut rose from 64% to 78.3%, putting pressure on the UK government to adjust fiscal policies accordingly.
Traders will closely monitor upcoming UK inflation, employment data, and US economic reports. Technical indicators suggest GBP/USD bears leading, as seen in movements below the 20-day SMA, and traders anticipate further volatility.
The recent economic release from the UK—namely a second consecutive month of contraction in GDP—has added pressure to monetary policy expectations. A monthly decline of -0.1% in May, following April’s contraction, shows a clear loss of momentum across several sectors. We’ve seen the probability of an August interest rate cut from the Bank of England climb sharply to 78.3%. This shift in outlook has already had an immediate impact on sterling, with GBP/USD falling by over half a percent to 1.3504, retreating from earlier highs around 1.3584.
Impacts Of Trade Policies
Looking across the Atlantic, the White House’s latest trade move—an announcement of new 35% tariffs on Canadian imports—triggered an uptick in risk aversion. With investors shifting to safe-haven assets, the US Dollar gained ground, lifting the Dollar Index to 97.83, a rise of 0.26%. That upward move reflects not only the current geopolitical friction but also firm expectations surrounding US economic strength, at least relative to its peers.
Back to the UK, the two-month GDP decline adds more weight to the monetary policy debate. With domestic output shrinking and consumer confidence showing strain, markets have rapidly repriced the path of future interest rates. That 14% move in rate cut odds within a month is a direct function of investors recognising that growth figures are not in line with previous forecasts. The reaction in sterling—dropping beneath the 20-day simple moving average—is a signal of growing positional adjustments, and not merely short-term noise.
What’s important now, in our view, is how economic calendars shape up in the next few weeks. Inflation prints and labour market numbers are next in line; both will help fine-tune the timing and size of any policy response. A softer inflation report, combined with stagnant wage growth, could decisively tip the Bank into easing mode. On the other hand, any upside surprise could knock back current expectations. That’s why flexible positioning is essential right now—longer-term macro views must accommodate incoming data volatility.
From a technical perspective, there is a bias building in favour of further downside in sterling. The failure of GBP/USD to hold above its mid-range levels suggests that traders remain inclined to sell on rallies. Momentum appears to be tilting further towards sellers, particularly as price action hovers below average short-term trend indicators.
Although macroeconomic releases from the UK are drawing wide attention, developments in North America—particularly those involving trade policy announcements—should not be overlooked. The adjustments to tariffs not only impact the Canadian market but ripple into broader dollar demand. When tariffs rise, global investors tend to favour liquidity and perceived safety, and this continues to reward the US currency in the immediate term.
In preparation, we’re watching for shape and direction in upcoming charts with greater context. Volume during volatility spikes will matter more than usual, and so too will open interest data around key levels. This isn’t the time to rely solely on historical correlations; instead, it’s a period that rewards those who combine real-time data with measured strategy.
