• The British pound is almost flat during the day, though slightly positive after a peaceful trading day.
• Weaker UK economic data, high inflation, and slowing growth paint a stagflationary scenario for the GBP.
• On Tuesday, the UK S&P Global/CIPS Services and Composite PMIs to shed additional information on the British economy.

During the North American session, the British pound is subdued, clinging to the 1.2100 mark after retracing from daily highs around 1.2165 in a quiet trading session. At the time of writing, the GBP/USD is trading around 1.2104.

Last week’s dismal UK economic data and its weaker economic outlook, a headwind for the GBP/USD

European equities finished mixed in the session, while in the FX complex, safe-haven peers fell. The rule exception is the greenback, which is gaining vs. the pound. Given that the UK Gfk consumer confidence dropped to its lowest level since records began in 1974 and high inflationary pressures are rising, the GBP/USD might weaken ahead due to its stagflation scenario.

Elsewhere, Brexit jitters are back in the headlines once the UK wants to break the Brexit deal agreed with the EU two years ago. Meanwhile, expectations of the Bank of England hiking rates aggressively eased the tone for the August 4 meeting. The odds of a 50 bps rate hike lie at 65% vs. 75% in the last week, and expectations for the subsequent meetings were lowered, as shown by STIR’s money market futures.

In the meantime, Scotiabank analysts, in a note, wrote that they see limited upside potential for the GBP, given the backdrop of “a weak economy and at risk of continued losses from overextended BoE hike expectations.”

“There is no major data out this week that could improve the GBP’s fortunes, and the currency should mostly follow the USD tone. The BoE publishes its semi-annual Financial Stability Report tomorrow, with Tenreyro (dove) speaking later in the day, while other addresses from Pill (neutral), Cunliffe (dove), and Mann (hawk) later in the week will also help to refine expectations for BoE tightening over the next few meetings,” analysts at Scotiabank added.

Data-wise, in the week ahead, the UK economic docket will feature S&P Global/CIPS UK Services and Composite PMIs for June, alongside the Financial Stability Report. Also, the Bank of England (BoE) Governor, Andrew Bailey, will cross news wires. On the US front, the US calendar will reveal Factory Orders for May,  ISM Non-Manufacturing PMIs, Fed speakers, and the US Nonfarm Payrolls report for June

GBP/USD Key Technical Levels