• The GBP/USD price analysis indicates a weaker UK economy.

• Data revealed a 0.1% contraction in the UK economy. 

• Market participants expect the Bank of England to keep rates unchanged next week.

The GBP/USD price analysis indicates a weaker UK economy after data revealed an unexpected contraction. Meanwhile, market participants are grappling with the escalating global trade tensions as Trump continues his aggressive policy changes. 

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The pound pulled back on Friday after data revealed a 0.1% contraction in the UK economy. This followed an expansion of 0.4%. Economists had expected the GDP to increase by 0.1%. The poor report might increase pressure on the Bank of England to lower borrowing costs. However, market participants expect the central bank to keep rates unchanged next week.

The BoE and other major central banks will likely proceed with caution due to uncertainty regarding the impact of Trump’s tariff. The US president has attacked many of its major trading partners with tariffs, igniting trade wars. The UK is yet to feel the pain of these tariffs like Canada and the Eurozone. However, Trump is not done. He intends to keep imposing tariffs that will affect more countries.

Meanwhile, data from the US on Thursday was mixed. Wholesale inflation came in lower than expected. On the other hand, unemployment claims missed forecasts, indicating increased demand for labor. Nevertheless, Fed rate cut expectations have risen significantly due to recent downbeat economic data.

GBP/USD key events today

• Prelim UoM Consumer Sentiment
• Prelim UoM Inflation Expectations

GBP/USD technical price analysis: Bearish RSI divergence 

On the technical side, the GBP/USD price has paused its steep rally near the 1.2951 resistance level. Although the price trades above the 30-SMA, it seems ready to break below. Meanwhile, the RSI has made a bearish divergence, indicating weaker bullish momentum. 

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The price has maintained a bullish trend, trading mostly above the 30-SMA. However, every now and then, the price has broken below the SMA for a deeper pullback. With this, the uptrend has created a solid support trendline. 

Therefore, a break below the SMA would not necessarily indicate a reversal. Instead, the price might need a deeper pullback. A retest of the support trendline will allow bulls to regain momentum and seek new highs. The trend will only reverse when the price breaks below this trendline.

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