Core Viewpoint - The British pound is likely to face further downward pressure due to weak GDP data released on Friday, indicating economic contraction in May [1] Economic Data - UK GDP unexpectedly shrank by 0.1% in May, highlighting downside risks to economic growth [1] - The weak economic performance has strengthened market expectations for a potential interest rate cut by the Bank of England in August, unless June inflation data shows unexpected improvement [1] Inflation and Market Sentiment - Stable inflation may provide some short-term support for the pound; however, medium-term outlook remains bleak due to fiscal tightening and weak labor market data [1] - Monthly GDP contraction further suggests that the pound will continue to face sustained pressure [1]

Core Viewpoint - The UK economy remains sluggish despite improvements in the business environment, with a projected GDP growth rate of only 0.1% for the second quarter [1] Group 1: Economic Performance - According to the initial PMI survey data, business activity growth is stagnating, indicating a lack of significant recovery in the economy [1] - Business confidence has declined again in June compared to the same period last year, reflecting ongoing concerns about government policies and global trade protectionism [1] Group 2: Employment and Inflation - Employment numbers continue to decrease as companies face higher labor costs, lower demand, and diminished confidence stemming from last autumn's budget [1] - The stagnation in growth, declining employment, and lower inflation rates may lead the Bank of England to consider another interest rate cut in its upcoming policy meeting in August [1]

Group 1 - The Bank of England is expected to maintain the policy interest rate at 4.25% during the upcoming meeting, with market expectations for two rate cuts within the year [2][3] - Recent disappointing employment data and slowing wage growth are paving the way for potential rate cuts in August and November [3][4] - Wage growth in the private sector has decreased from 6% to nearly 5%, indicating a real cooling of wage pressures [5] Group 2 - The overall inflation situation in the UK remains challenging, with CPI expected to stay above 3% for the year [5] - Service sector inflation rose to 5.4% in April, primarily due to road tax increases and the timing of Easter, but is expected to decrease in the coming months [5][6] - ING predicts that the Bank of England will cut rates again in November, with a final rate of 3.25% by 2026, slightly below market pricing [10] Group 3 - Voting on rate decisions may show some division, with a possibility of a few officials supporting a rate cut this month [6][7] - The meeting is anticipated to result in a vote of 7 to 2 in favor of maintaining the current rate, with potential for a 6 to 3 outcome [7] - The Bank of England has consistently emphasized a "gradual and cautious" approach to monetary policy, which is expected to be reiterated in the upcoming statement [8]

Group 1: Dollar Performance - The dollar experienced a general decline due to market concerns over the uncertainty surrounding trade agreements promoted by President Trump [1][3][9] - The dollar fell 0.86% against the yen, closing at 142.445 yen [1] - The widening U.S. trade deficit, reported to have increased by 14% to a record $140.5 billion, further exacerbated market worries [6][9] Group 2: Euro Strength - The euro strengthened following the election of conservative leader Merz as Chancellor in Germany, with a closing increase of 0.50% to $1.1371 [4][9] - Merz's election is viewed as a positive signal for political stability in Germany, boosting market confidence in the euro [4] Group 3: Canadian Dollar Performance - The Canadian dollar appreciated by 0.39% against the U.S. dollar, closing at 1.38 CAD, following Prime Minister Carney's firm stance on trade negotiations [5][9] - Carney's comments reflect Canada's strong position on trade issues, enhancing market confidence in the Canadian dollar [5] Group 4: Market Expectations - The market is closely watching the Federal Reserve's policy decision, with expectations that interest rates will remain unchanged [8] - There is speculation that the Bank of England may lower rates by 25 basis points, contributing to a 0.61% increase in the British pound to $1.33780 [8]

Core Viewpoint - Ebury economists suggest that if the Bank of England indicates that market expectations for interest rate cuts are excessive, the British pound may strengthen [1] Summary by Relevant Sections - Market Expectations: LSEG data shows that the market anticipates the Bank of England will cut interest rates by 90 basis points for the remainder of 2025 [1] - Central Bank Position: The Bank of England may find it challenging to meet these expectations and may prefer to maintain a selective approach [1] - Political and Economic Context: The British pound is expected to benefit from a Labour government and closer UK-EU relations [1]