GBP/USD Forecast: Sterling Rises on Weak U.S. Jobs, Faces UK Fiscal Headwinds

GBP/USD Pressured by Diverging Fundamentals

The pound is trading in volatile fashion against the dollar as GBP/USD hovers around 1.3515, rising 0.6% on the day after dismal U.S. labor data. Nonfarm payrolls added just 22,000 jobs in August compared with forecasts of 75,000, while unemployment ticked up to 4.3% from 4.2%. The weak jobs print sent U.S. 10-year yields tumbling 2% to below 4.1%, dragging the dollar index to its lowest since July at 97.50. This collapse in dollar momentum allowed sterling to reclaim levels above 1.35 despite deep concerns surrounding the UK’s fiscal position and sticky yields.

UK Fiscal Concerns Limit Sterling Upside

While the dollar’s slump has temporarily lifted GBP/USD, investors remain cautious about the UK outlook. Thirty-year gilts recently touched their highest yield since 1998, reflecting market worries about Britain’s debt trajectory ahead of the November budget. Sterling peaked near $1.38 in July, but analysts expect sideways trade below 1.35 in the short term as fiscal risks cap bullish attempts. The market currently sees just an 18% chance of a Bank of England cut in November compared with 67% one month earlier, showing how sharply rate expectations have shifted with yields projected to stay higher than peers for longer.

U.S. Labor Weakness Reframes Fed Policy Bets

The weak NFP print has reshaped expectations for the Federal Reserve, with CME FedWatch showing 75% odds of consecutive 25-basis-point cuts in September and October. ADP data had already hinted at labor fragility with just 54,000 private-sector jobs added in August compared with 106,000 in July. Fed speakers have acknowledged risks, with Chicago’s Goolsbee highlighting deterioration in the job market, while New York’s Williams maintained that gradual easing remains an option if inflation allows. The dovish tilt is pulling the dollar lower across the board, but market positioning remains sensitive to every labor release.

Technical Picture for GBP/USD

On the charts, GBP/USD trades within a bearish channel but currently sits above its 30-period SMA with RSI above 50, signaling bulls are trying to seize momentum. A push through channel resistance could lift the pair toward 1.3575, confirming another impulsive move higher after the recent corrective phase. If momentum stalls, immediate support lies near 1.3416, followed by 1.3376 and 1.3341. Failure to defend those levels would re-expose the August low at 1.3142. On the topside, resistance zones cluster around 1.3489, then 1.3543, with a breakout targeting July’s 1.3789 peak.

Sterling’s Relative Strength Against Majors

The heat map of currency performance shows sterling was strongest against the dollar, gaining 0.66%, while only marginally weaker versus the euro at -0.09%. GBP also outperformed the Canadian dollar by 0.53% and gained 0.92% against the Australian dollar, underscoring how much dollar weakness drove the move. Despite this strength, sentiment remains fragile as traders recognize sterling’s rally is built more on U.S. weakness than UK strength. The UK’s fiscal risk premium means any rebound in dollar yields could quickly unwind recent gains.

Outlook for GBP/USD

Short-term dynamics are dominated by U.S. labor data and Fed policy bets. If the Fed confirms rate cuts in September and October, GBP/USD could extend toward 1.36–1.38, though UK fiscal risks may prevent a sustainable break higher. Conversely, stronger-than-expected U.S. data or hawkish Fed pushback could see the pair retest 1.33 or lower. With MUFG projecting 1.40 for GBP/USD by Q2 2026 on expected dollar weakness, the longer-term trajectory remains bullish, but near-term trading is likely to remain volatile within a broad 1.3140–1.3595 band.

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