GBP/USD Forecast: Sterling Slides Toward 1.3240 as Fiscal Gap, BoE Cut Odds, and Fed Decision Pressure Pound

GBP/USD Under Renewed Pressure as Fiscal Concerns Deepen and Dollar Strengthens

The British Pound to U.S. Dollar (GBP/USD) remains under intense selling pressure, trading near 1.3280 after briefly touching 1.3247, marking its weakest level since August. The pair has fallen more than 3.4% from September’s peak at 1.3725, extending a two-week decline as investors reassess the UK’s fragile fiscal position and upcoming monetary decisions on both sides of the Atlantic. Market sentiment toward Sterling has deteriorated sharply following the Office for Budget Responsibility’s (OBR) warning of a £20 billion shortfall in government finances, a gap that could widen to £35 billion under current productivity and growth assumptions.

The OBR’s findings fuel speculation that Chancellor Rachel Reeves may introduce tax hikes in the November Budget to stabilize public accounts. Such a move could tighten household spending and consumer demand, threatening the UK’s already sluggish recovery. The UK economy remains structurally weak — GDP growth is stalling near 0.2% quarter-on-quarter, productivity continues to lag, and inflation, though easing, underscores a fragile backdrop. The British Retail Consortium’s data revealed softer food prices and inflation slowing to 1.8%, giving markets confidence that the Bank of England (BoE) could pivot toward easing sooner than expected. Traders now assign a 68% probability of a 25-basis-point rate cut in December, a dramatic shift from earlier expectations of a prolonged pause.

Dollar Firm Ahead of Fed Rate Cut and Powell’s Guidance

On the U.S. side, the Federal Reserve is widely expected to announce its second 25-bps rate cut of 2025, lowering the target range to 3.75%–4.00%. However, the market’s focus is firmly on Chair Jerome Powell’s tone regarding future policy. A dovish statement signaling more cuts before year-end could provide some relief for the Pound, while a measured or hawkish stance could drive further downside toward 1.3140 or lower. The U.S. Dollar Index (DXY) trades steady near 98.70, supported by safe-haven demand amid global uncertainty and the Trump administration’s ongoing Asia visit, which produced a U.S.–Japan minerals alliance agreement aimed at securing rare earth supply chains.

The Fed’s decision comes as U.S. macro data weakens: Conference Board consumer confidence dropped to 94.1, ADP private payrolls fell by 36,000, and housing data showed prices slowing for the seventh consecutive month. Despite these signals, the Dollar remains resilient, reflecting investors’ preference for liquidity and yield amid heightened volatility in Europe and Asia.

Fiscal Anxiety and Volatility Build Ahead of Reeves’s Budget

The upcoming UK Autumn Budget has become a defining risk event for Sterling. With the implied volatility on GBP/USD options rising to a three-month high, traders are increasingly positioning for sharper moves as fiscal risk looms. If Reeves confirms new spending commitments without clear funding clarity, markets could interpret the plan as fiscally expansionary, reviving concerns similar to the 2022 mini-budget crisis that triggered a sharp Sterling collapse.

Investors are also monitoring BoE communication, with Governor Andrew Bailey expected to emphasize data dependency. Market pricing now implies 50 bps of total easing by mid-2026, though fiscal stress may accelerate that timeline. For Sterling, this combination of monetary and fiscal fragility leaves little room for optimism in the near term, especially as the Dollar continues to absorb risk-averse inflows.

Technical Breakdown: Double-Top at 1.3725, Neckline Targets 1.3140

From a technical standpoint, GBP/USD continues to trace a double-top pattern with the neckline around 1.3140, a level that has now become a key inflection point. The pair trades below the Supertrend indicator, confirming a sustained bearish bias. Short-term resistance is observed at 1.3340, 1.3400, and 1.3520, while support levels cluster around 1.3240, 1.3180, and 1.3140. A decisive close below 1.3140 could extend losses toward 1.3000, while only a breakout above 1.3400 would neutralize downside momentum.

Momentum indicators align with this bearish structure: the RSI remains in the mid-40s, showing no bullish divergence, while the Percentage Price Oscillator (PPO) remains in negative territory. Volume data from interbank flows show renewed selling each time GBP/USD attempts to recover above 1.3340, confirming strong resistance from institutional sellers.

Global Risk Environment: Gold Rally and Yen Strength Confirm Flight to Safety

The broader macro environment adds further weight to Sterling’s decline. The rally in Gold (XAU/USD) back above $4,000 per ounce and the surge in Japanese Yen (JPY) — with GBP/JPY nearing 201.00 — signal a pronounced flight-to-safety sentiment across global markets. Risk assets, including equities and emerging-market currencies, remain under pressure ahead of the Fed’s decision and potential follow-through from Trump’s trade policies.

This shift toward defensive positioning highlights the challenge for Sterling: investors are not only cautious about domestic fiscal policy but are also shifting capital toward assets perceived as safe havens. That dynamic leaves GBP/USD vulnerable to deeper retracements unless the Fed strikes an unexpectedly dovish tone or the UK Budget surprises positively.

Market Positioning and Volatility Signals Further Downside

Positioning data indicates that institutional traders remain net short Sterling. CFTC futures show a steady increase in GBP short positions over the past two weeks, while options market skew favors downside protection, with higher demand for puts around the 1.3150–1.3200 range. The increase in one-week implied volatility — now at 7.2%, the highest since August — suggests markets anticipate a 100–120 pip swing following the Fed statement.

Short-term sentiment remains bearish, with hedge funds and asset managers reducing long exposure in anticipation of further policy divergence. Traders see limited upside unless Powell explicitly commits to further easing or Reeves delivers a credible fiscal plan. Until then, the pair is likely to remain range-bound between 1.3140 and 1.3400, with rallies being sold aggressively.

TradingNews.com Verdict: SELL (Bearish Bias While Below 1.3400)

The data-driven narrative leaves GBP/USD in a clearly bearish setup. Fiscal fragility, widening budget uncertainty, soft inflation, and a market priced for BoE cuts all weigh against Sterling. Unless the Fed pivots sharply dovish or UK policymakers deliver fiscal clarity, the path of least resistance remains lower.

Verdict: SELL — bearish bias maintained while GBP/USD trades below 1.3400; next targets 1.3180 and 1.3140, with potential extension to 1.3000 if Budget risks escalate.

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