Global Markets Shaken by UK Economic Woes and Trump’s Tariff Threats

The British economy is facing turbulent times as the latest GDP figures reveal a second consecutive month of contraction, intensifying expectations for a Bank of England (BoE) interest rate cut in August. Coupled with U.S. President Donald Trump’s aggressive new trade policies, including a hefty 35% tariff on Canadian goods, global markets are reeling. The GBP/USD pair has taken a significant hit, dropping 0.59% to trade at 1.3504 after peaking at 1.3584, reflecting the mounting pressures on the British pound amid these economic headwinds.

The Office for National Statistics (ONS) reported that UK GDP shrank by 0.1% month-on-month in May, following a 0.3% decline in April. This persistent economic weakness, driven by slumps in industrial and construction output, has fueled speculation that the BoE will ease monetary policy to stimulate growth. According to LSEG data, the probability of an August rate cut has surged to 78.3%, up from 64% just two weeks ago. This shift is putting additional strain on UK Chancellor Rachel Reeves, who faces the challenge of balancing public finances, with expectations of tax increases looming in the upcoming budget.

Across the Atlantic, Trump’s escalation of trade tensions is further unsettling markets. His administration’s imposition of 35% tariffs on Canadian goods—excluding products covered by the USMCA—has dampened risk appetite and bolstered the U.S. dollar. Trump’s remarks about potential 15-20% blanket tariffs on most trading partners have only heightened uncertainty, driving the U.S. Dollar Index (DXY) up by 0.26% to 97.83. This strengthening of the dollar has compounded the challenges for the GBP/USD pair, which is struggling to maintain its footing.

From a technical perspective, the GBP/USD pair’s uptrend is under threat. The pair has slipped below the 20-day Simple Moving Average (SMA) at 1.3590, though it remains just above the 50-day SMA at 1.3492. The Relative Strength Index (RSI) suggests that bearish momentum is gaining traction, signaling potential further declines if support levels are breached.

Looking ahead, key economic data releases next week will be critical for both the UK and the U.S. In the UK, traders are eagerly awaiting inflation and jobs reports, which could influence the BoE’s next moves. In the U.S., the Consumer Price Index (CPI) and Retail Sales data will provide insights into the health of the economy and the Federal Reserve’s potential response. As global markets navigate these economic and geopolitical uncertainties, the outlook for the pound and broader risk sentiment remains precarious.