British Pound: Poised to fall toward 1.3100 against US Dollar – BBH

Brown Brothers Harriman’s Elias Haddad says GBP/USD has given back part of its US-Iran-related gains and is expected to fall to 1.3100 as United States (US) growth outpaces the United Kingdom (UK). Softer UK GDP and PMI data, reduced Bank of England (BoE) hike expectations, and a potentially destabilizing political backdrop, including the Makerfield by-election, are all seen weighing on the Pound (GBP) despite some policy support.

Pound pressured by growth and politics

"GBP/USD pared back some of yesterday’s positive US-Iran breakthrough gains. We expect GBP/USD to fall to 1.3100, reflecting a stronger US growth outlook relative to the UK. BOE rate hikes in a sluggish growth, high inflation environment, is not bullish for GBP but should help cushion the downside."

"In line with consensus, UK real GDP fell -0.1% m/m in April vs. +0.3% in March. This is the first monthly fall since August 2025 and was driven by a decline in services output (-0.2% m/m). Production showed no growth, and construction grew by 0.1% m/m."

"PMI data indicate UK real GDP could contract by -0.2% q/q in Q2, undershooting the BOE’s baseline forecast of +0.1% q/q. The swaps curve slashed BOE rate hike bets over the next twelve months to 40bps from 60bps yesterday. But that largely reflects falling energy prices, as tightening expectations have been curtailed across most other major economies."

"The UK political backdrop can amplify a GBP undershoot. Attention is increasingly shifting to the June 18 Makerfield by-election. Recent polls show Andy Burnham with a 10-point lead over Reform UK, potentially clearing a path for his return to parliament and a leadership challenge to Prime Minister Keir Starmer. A Burnham-led Labour government will likely lead to more spending and borrowing, worsening UK fiscal credibility."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)