GBP/USD drops below 1.2700 as UK GDP unexpectedly contracts

GBP/USD declined 0.4% to 1.2680 following disappointing UK economic data that showed an unexpected GDP contraction. The UK economy shrank by 0.1% in the latest period, missing forecasts of 0.1% growth and raising concerns about the Bank of England's ability to maintain its hawkish stance. The pound's initial losses were limited by broad dollar weakness, as US inflation data came in below expectations, keeping the greenback under pressure. Technical indicators show GBP/USD struggling to maintain momentum above the 1.2700 psychological level, with immediate support at 1.2650 (50-day moving average) and resistance at 1.2730 (weekly high). The contracting UK economy could prompt the BoE to reconsider its tightening cycle, potentially capping sterling's upside. Traders await tomorrow's US PPI data for further dollar direction, while UK employment figures next week will be crucial for assessing pound strength.