GBP/USD Tumbles as Monetary Policy Divergence Widens and US Inflation Data Disappoints
The GBP/USD pair continues to trade in negative territory as the British Pound edges lower against the US Dollar. This downward trend is attributed to widening monetary policy divergence between the Bank of England and the Federal Reserve.
Recent data releases have shown a softer-than-expected US Personal Consumption Expenditures (PCE) inflation rate, which has weighed on the Greenback and acted as a tailwind for the major pair. As a result, traders are now pricing in nearly 33 basis points of monetary tightening from the Bank of England by year-end and over 100 basis points by the end of 2027.
However, analysts broadly expect much more limited action from the central bank. MUFG analysts note that the UK growth backdrop has improved, with a raised forecast for growth in Q3 to 0.4% from their previous projection of 0.1%. They argue that this stronger growth will encourage the BoE to tighten policy soon if higher energy prices continue to prove more persistent.