GBP/USD crashes as UK GDP disappoints, trade war escalation boost USD

• UK GDP shrinks for second straight month, boosting August BoE cut odds to 78%.
• Trump escalates trade war with 35% tariffs on Canadian goods, spooking markets.
• Rising rate cut bets and fiscal concerns pressure Sterling ahead of key UK data next week.

The GBP/USD tumbles over 0.59% on worse than expected Gross Domestic Product (GDP) figures in the UK, which could warrant further easing by the Bank of England (BoE). This and an escalation of the trade war boosted the Greenback. At the time of writing, the pair trades at 1.3504 after reaching a high of 1.3584.

GBP/USD sinks 0.59% as weak UK growth fuels BoE cut bets and Trump slaps 35% tariffs on Canada

Sentiment has shifted sour as US President Donald Trump revealed a trade letter to Canada in which he imposed 35% tariffs on goods with exemptions for USMCA-related products. Consequently, risk appetite deteriorated, and the Dollar advanced.

Besides this, Trump said that he is eyeing blanket tariffs of 15% to 20% on most trading partners.

The US Dollar Index (DXY), which tracks the advance of the buck against a basket of six currencies, prints gains of 0.26% at 97.83,

Across the Atlantic, UK GDP shrank by -0.1% MoM in May after a drop of -0.3% in the previous month, revealed the Office for National Statistics (ONS). The ONS revealed that the result reflects weakness in industrial and construction output.

The data had increased the likelihood of a rate cut by the BoE in the August meeting, with odds at around 78.3% up from 64% two weeks ago, according to LSEG data.

This adds pressure to UK Chancellor Rachel Reeves, who is expected to raise taxes at the next budget, to balance the government's public accounts.

Next week, traders will eye the UK inflation and jobs report. in the US, the docket will feature the Consumer Price Index (CPI), and Retail Sales data.

GBP/USD Price Forecast: Technical outlook

The GBP/USD uptrend remains questionable as the pair has dropped below the 20-day SMA at 1.3590, but so far is clinging above the 50-day SMA at 1.3492. Momentum indicates that bears have the upper hand, as depicted by the Relative Strength Index (RSI).

That said, a daily close below 1.3500 could pave the way for further GBP/USD losses. The first support is 1.3500, followed by the 50-day SMA. A breach of the latter will expose 1.3400 and the 100-day SMA at 1.3248. On the flipside, if the pair stays above 1.3500, buyers need to surpass the 20-day SMA to challenge 1.3600.