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The bull trend is being threatened.
The Pound to Dollar exchange rate retreats back to 1.35 ahead of the weekend, driven by a combination of disappointing UK domestic data and a broader USD really, and analysts say further losses are increasingly likely.
"The multi-month bull trend is being threatened," says Shaun Osborne, Chief FX Strategist at Scotiabank.
Pound Sterling fell half a per cent following news that UK GDP printed at -0.1 month-on-month in May, making for a second consecutive negative monthly read, which sets us up for a poor quarter.
The Pound's weakness is a signal that markets are gearing up for a speeding up in the rate at which the Bank of England lowers interest rates.
"Rate cuts in the second half of 2025, one in August and one in November, would trim back re/mortgage pain, lower the incentive to hoard cash and, crucially, signal that policy is no longer working against households already carrying the twin burden of high shelter costs and high taxes," says Alexandros Xenofontos at TS Lombard.
We headed into July with two rate cuts hitched to the mast for the remainder of the year, now we are seeing a rising liklihood of a third, with Goldmans Sachs saying the Bank will switch from a quarterly run-rate to a monthly one.
Bets for lower UK interest rates come as foreign exchange markets begin to pay more attention to the relative interest rate settings between an economy, having been distracted by tariffs and U.S. policy uncertainty for much of the year.
While the Bank of England is seen cutting by more, the Federal Reserve is seen cutting by less, on account of a decent run in U.S. domestic data of late. This divergence is set to weigh on GBP/USD.
At the same time, the flow of tariff threats from U.S. President Donald Trump is starting to wane as a negative driver for the Dollar, with analysts pointing to the TACO trade (Trump Always Chickens Out). Simply put, markets are losing their fear of Trump owing to his tendency to push back on deadlines.
Of course, the risk is that Trump gets the hump with TACO enthusiasts and decides to deal them a lesson they won't forget.
"President Trump has indicated that, since recent tariff announcements have not weakened the U.S. equity market, he is considering higher tariff levels. Is this revenge against the FT’s Robert Armstrong description of tariff strategy as the TACO trade?" says Kit Juckes, a strategist at Société Générale.
The Dollar rebound adds to downside GBP/USD momentum, and Scotiabank's Osborne says the exchange rate is approaching critical medium-term support at the 50-day MA (1.3497).
"The RSI has also drifted below 50, suggesting that near-term momentum is starting to lean bearish. We look to near-term support at 1.3500 and resistance above 1.3600," he adds.