UK GDP Growth Holds at 0.4% as Dollar Weakness Continues | GBP, EUR & USD Market Update

Key Highlight

• UK GDP grew by 0.4% quarter on quarter in Q2, exactly as expected, with business investment rising 1.7%. The solid headline keeps the Bank of England in no rush to cut rates, providing some support for sterling.
• The underlying UK data was less convincing. Manufacturing output fell 0.5% in June, against expectations of a 0.1% decline, while industrial production dropped 0.2% compared with forecasts for a 0.1% increase.
• The dollar remained under pressure after US inflation eased to 3.4% year on year, down from 3.5%. The softer inflation picture has reduced expectations of a September Federal Reserve rate hike.
• Reports that the US administration is comfortable with a weaker dollar to support manufacturing competitiveness are adding to the longer-term dollar weakness narrative.

Market Recap

The dollar continued to weaken overnight as markets adjusted their expectations for US interest rates following the latest inflation data. The narrowing yield advantage between the US and other major economies is also reducing demand for the dollar.

Global equity markets moved towards record highs as expectations of further Fed tightening faded, reinforcing the broader risk appetite that has been weighing on the US currency.

Sterling has remained relatively supported following this morning's UK GDP figures. Growth of 0.4% quarter on quarter and 1.2% year on year, combined with a 1.7% increase in business investment, suggests the UK economy is holding up better than some recent data had indicated.

However, the weaker manufacturing and industrial figures provide a reason for caution. Construction output also fell 0.1% in June, highlighting that the strength of the overall GDP figure is not being reflected evenly across the economy.

Elsewhere, the extension of the US Iran ceasefire helped ease oil prices yesterday, making Norwegian krone purchases cheaper, while the Norwegian krone and Swiss franc were broadly stable overnight.

Market Overview

Euro vs Dollar

Near term: 50% conviction, mildly higher. EUR/USD remains broadly range bound, with recent movements driven more by overall dollar weakness than by euro specific factors. Today's US producer prices and jobless claims will be important in determining whether expectations for further Fed tightening weaken further.

A softer PPI reading or an increase in jobless claims could reinforce the view that the Fed has finished raising rates. Oil prices and geopolitical developments remain key risks.

Medium term: 60% conviction, euro strength. The medium term outlook continues to favour the euro. Expectations of further ECB tightening, improving eurozone growth prospects and the broader structural weakness in the dollar are supporting the pair.

A sustained oil price above $100 would be the main risk, as renewed energy inflation could complicate the outlook for both central banks.

What this means: A move towards resistance would cost dollar buyers approximately $5,375 more per €250,000, while a move towards support would cost approximately $4,500 more.

Pound vs Dollar

Near term: 55% conviction, mildly higher. GBP/USD remains in an upward trend despite slipping slightly overnight. Today's UK GDP figures provide sterling with some fundamental support, particularly with business investment increasing 1.7% and growth matching expectations.

The weaker manufacturing data is the main counterweight. US PPI and jobless claims this afternoon could provide the next significant move for the pair.

Medium term: 50% conviction, range bound. The outlook remains mixed. Sterling could benefit from continued dollar weakness, although fair value models suggest the pound is already relatively strong against the US currency.

There are also longer term risks for the UK economy. Treasury modelling reportedly puts UK growth at just 0.9% in 2026 and 0.3% in 2027 if disruption to the Strait of Hormuz persists, with inflation potentially reaching around 4.3%. This would create a more challenging environment for sterling despite today's positive GDP headline.

What this means: A move towards resistance would save dollar buyers approximately £389 per $250,000, while a move towards support would cost approximately £484 more.

Pound vs Euro

Near term: 55% conviction, mildly higher. GBP/EUR remains broadly range bound after drifting lower from its mid July high. The UK's 0.4% quarterly GDP growth provides some support for sterling, although the weakness in manufacturing means the data is not an entirely positive picture.

Medium term: 50% conviction, mixed. The outlook remains balanced. Improving eurozone growth provides some support for the euro, while a renewed rise in energy prices could disproportionately affect the eurozone and provide sterling with an advantage.

What this means: A move towards resistance would save euro buyers approximately £2,326 per €250,000, while a move towards support would cost approximately £1,281 more.

Bottom Line

The UK economy delivered exactly the 0.4% Q2 growth expected, helping to keep the Bank of England in no rush to cut rates and providing sterling with some support. However, the weaker manufacturing and industrial figures show that the recovery remains uneven.

For the dollar, the latest US inflation data is continuing to reduce expectations of further Fed tightening and reinforcing the broader weakness seen across the currency.

US producer prices and jobless claims are the key releases to watch today, with the potential to determine whether the dollar's recent weakness continues and whether GBP/USD can extend its current upward trend.

13th August  2026

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