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Ben Hughes

STORY LINK GBP/USD Forecast: Pound Sterling Weaker as Dollar Gains Despite Shutdown

The Pound to US Dollar exchange rate (GBP/USD) weakened on Monday despite an ongoing US government shutdown, and an uptick in Federal Reserve interest rate cut expectations.

At the time of writing, GBP/USD was trading at approximately $1.3433, down roughly 0.4% from the start of Monday’s session.

The US Dollar (USD) strengthened against several major peers on Monday, despite ongoing domestic uncertainty.

The US government remained in shutdown during the session, with reports suggesting that widespread lay-offs could follow if the funding bill is not agreed upon soon.

At the same time, the CME FedWatch Tool indicated a sharp rise in interest rate cut expectations, with markets now pricing in a 95% probability of a cut in October and an 85% chance of another in December.

Ordinarily, such dovish expectations might weigh on the ‘Greenback’, but the currency instead managed to find support.

Weakness in both the Japanese Yen (JPY) and the Euro (EUR) at the start of the week allowed the USD to gain ground, helping it firm against a range of major counterparts despite the challenging domestic backdrop.

The Pound (GBP) traded without a clear sense of direction on Monday, fluctuating against the majority of its peers in the absence of any significant UK data releases.

A mixed market mood left Sterling moving unevenly through the session, dipping against certain rivals while recording modest gains elsewhere.

With little in the way of domestic drivers to influence sentiment, GBP investors adopted a cautious stance ahead of a scheduled speech from Bank of England (BoE) Governor Andrew Bailey later in the evening.

Should Bailey deliver hawkish commentary or indicate that UK interest rates will remain higher for longer, the Pound could find renewed support in the wake of his remarks.

Looking ahead to Tuesday’s European session, movement in the Pound US Dollar (GBP/USD) exchange rate is expected to hinge on a series of scheduled Federal Reserve speeches.

If Fed policymakers strike a hawkish tone and signal that interest rates could remain elevated for longer, the US Dollar may strengthen as investors adjust their expectations.

Equally, any dovish remarks reinforcing the likelihood of rate cuts could see the ‘Greenback’ come under renewed pressure.

As for the Pound, a continued lack of UK economic releases means Sterling is likely to remain directionless, with traders instead taking cues from wider market trends.

In the absence of fresh domestic drivers, GBP exchange rates could remain volatile, fluctuating in response to changes in global risk appetite and external developments throughout Tuesday’s European trading session.

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• EUR/USD forecast remains restrained around 1.1660, with political chaos in France and the US government pressuring market sentiment. 

• The downside risk is restricted by expectations of Fed rate cuts, and the euro finds backing from the ECB’s stable stance.

• Traders are focused on potential technical levels and economic data, which could influence EUR/USD’s upcoming move. 

The EUR/USD forecast indicates the pair continues to hold steady near one-month lows since renewed political instability in France and the ongoing US government shutdown constrain the market. The euro dropped below 1.1700 just as the French Prime Minister, Sebastian Lecornu, resigned. This move exacerbated concerns about worsening Eurozone instability. 

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On the other hand, the continuing US fiscal impasse, in its second week, has impeded government operations and stalled major data releases. Meanwhile, President Trump’s threat of mass layoffs has further shaken the markets. Keeping these pressures in view, the downside for EUR/USD looks limited. According to the CME FedWatch tool, there is a 95% probability of an October cut and 84% for December. Additionally, this dovish sentiment could cap further US dollar strength. 

In the European part, the ECB’s cautious stance suggests limited but stable backing for the bloc’s currency. Policymaker Martin Kazaks emphasized that current interest rates are very reasonable, indicating policy stability despite inconsistent regional growth. 

Eurozone retail sales increased 1% year-on-year in August, in line with forecasts but declining from July’s 2.1%, highlighting a moderate consumer recovery. Investors now anticipate Sentix Investor Confidence data and comments from ECB President Christine Lagarde, Vice President Luis de Guindos, and board member Philip Lane for additional policy signals. 

By and large, while US fiscal deadlock and France’s political unrest continue to dampen sentiment, expectations of Fed rate cuts and stable ECB policy could offer the euro some strength. 

EUR/USD Key Events Today

The economic calendar is light today with no major data releases, while French politics and US funding talks have taken center stage. 

EUR/USD Technical Forecast: Bearish Pressure Below 1.1720

The EUR/USD daily chart reveals the currency pair retaining a sideways-to-bearish bias. The price has declined beneath the 20-day moving average (green line) and is holding right above the 100-day SMA (orange line) near 1.1620, indicating short-term weakness. A drop below this level could expose the next downside around 1.1195 (200-day SMA). 

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The RSI has dropped near 45, highlighting slowing momentum and signaling that bearish pressure may persevere unless buyers reclaim control above 1.1720. Overall, EUR/USD looks range-bound with a mild breach tilt, expecting a breakout for precise directional movement. 

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Pound sterling starts the new week with a solid advance against the euro, but can it make it stick?

The pound to euro exchange rate (GBP/EUR) starts the new week with a solid 0.36% gain, hitting 1.1521, which is the highest level since September 18.

The move looks to be part of a broader selloff in the euro, as euro-dollar trades nearly two-thirds of a per cent down at 1.1664. In fact, looking at the performance chart, the euro is down against everything apart from the yen (which has some domestic politics on its mind).

We suspect the movement is linked to news of another French Prime Minister resigning: French President Emmanuel Macron last night unveiled his new cabinet which immediately drew criticism from across the political spectrum, most likely because it was broadly the same as the last one.

Prime Minister Sebastien Lecornu announced his resignation this morning, leaving France rudderless and significantly raising uncertainty on multiple fronts.

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France’s economy has been struggling of late as a result of this uncertainty, and today’s news certainly bakes this theme into the outlook.

Concerns will build as to how the country can consolidate its debt amidst a political void, with matters certainly not being helped by further economic underperformance: economies must grow to service their debt.

We will be watching French sovereign debt yields through the day to gauge just how worried markets are. But for now at least, the currency is showing its displeasure.

In response, GBP/EUR rises through 1.15 and above the 21-day exponential moving average (at 1.1490), a key technical level that must be breached and defended if sterling is to enter a short-term uptrend.

If GBP/EUR closes above the 21-day, then 1.1560 becomes achievable in the coming days. Those with FX payment requirements should consider locking in current levels for a portion of their payment, and setting an order for higher levels to ensure they are not missed.

GBP/EUR had been under pressure through the August-September period but ultimately formed a base above 1.1440 in late September and early October.

The jump on Monday underpins that base and could even allow for a short-term rally to form.

However, the UK’s own problems won’t be forgotten and we think GBP/EUR upside could prove limited as a result.

Rally-busting issues include the Bank of England’s desire to raise interest rates at any given opportunity and the government’s inability to control spending, which inevitably boosts inflation and increases the odds of tax rises at the November 26 budget.

“The UK rates market doesn’t fully price a BoE cut until the end of winter, next March. The Eurozone rates market doesn’t price a further ECB cut for a very long time indeed,” says Kit Juckes, FX analyst at Société Générale. “What might happen if we saw an earlier BoE move, due to a deterioration in the economic backdrop. Winter is coming, and so are higher taxes.”

Juckes says such outcomes could press a move in EUR/GBP to 0.90 and GBP/EUR to 1.11.

GBP/EUR Investment Bank Consensus Forecasts Cut

The median and mean forecasts, that provide a consensus forecast for GBP/EUR, have fallen.

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Pound sterling will keep its soft underbelly thanks to a challenging fundamental narrative linked to the government’s spending policies and the Bank of England’s inability to bring inflation under control.

The budget forecasting process began last week, with the Office for Budget Responsibility (OBR) giving the government an initial ‘pre-measures forecast, one of a number of iterations ahead of the day itself.

OBR downgrades to productivity forecasts, increased social spending and higher debt costs mean the Chancellor will need to raise taxes, raising uncertainty for businesses and households.

For financial markets, the impact this uncertainty has on data will be important. Also, the market will be nervous about whether or not the government passes the credibility test when addressing the UK’s difficult fiscal path.

“Sterling markets will be sensitive to any leaks on its contents,” says a note from Lloyds Bank.

The new week commences with a timely article in Bloomberg that points to rising gold and bitcoin prices, which come at the expense of some currencies. It describes the phenomenon as the “debasement trade”.

Investors are worried about inflation and lax fiscal policies, which ultimately debase traditional currencies.

The pound is a prime example of a currency at risk of debasement: the government has the spending taps turned fully on, ensuring UK inflation is the highest in the G7, and rising. And despite this, the Bank of England continues to insist it must go further with interest rate cuts.

In short, British authorities are doing nothing to protect the currency from debasement, something that will surely have an impact on the pound’s long-term trajectory.

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