GBP/USD Price Forecast - Climbs Above 1.35 as Fed Rate Cut Odds Weigh on Dollar

GBP/USD Gains Momentum After Weak US Payrolls Data

The pound-to-dollar pair (GBP/USD) is trading near 1.3541, holding steady after Friday’s Nonfarm Payrolls report revealed just 22,000 new jobs in August, far below the 73,000 forecast. The unemployment rate climbed to 4.3%, its highest since the pandemic, sparking a selloff in the greenback and driving expectations that the Federal Reserve will cut rates at its September meeting. Markets are pricing in a 25 basis point cut, with a smaller 8% probability of a deeper 50 bps move. The weak U.S. labor picture has reinforced stagflation fears, with growth slowing under Trump’s tariff regime while inflation pressures persist, keeping the dollar under pressure.

Policy Divergence Between the Fed and BoE Shapes GBP/USD

The Bank of England is expected to keep policy steady as UK inflation remains elevated and retail sales continue to surprise on the upside. This divergence has strengthened GBP/USD, with traders positioning for a policy gap that could widen further if the Fed cuts rates. While U.S. CPI data due this week could test these assumptions, the balance of risks currently favors sterling strength. UK gilt yields remain elevated, with the 30-year yield peaking above 5.70% last week, the highest in nearly three decades, reflecting fiscal concerns. Political turbulence around Deputy Prime Minister Angela Rayner’s resignation and a reshuffle in Prime Minister Keir Starmer’s cabinet has not shaken the pound, suggesting investors are focused more on macro and policy drivers.

Technical Landscape for GBP/USD (Cable)

The GBP/USD pair has rebounded from its August low of 1.3143 and broken through resistance at 1.3428, now eyeing the 1.3560–1.3600 range as the next critical test. Daily charts show the pair firmly above its 50-day and 100-day exponential moving averages, while an inverse head-and-shoulders pattern is reinforcing bullish sentiment. Momentum indicators such as the RSI remain below overbought levels, leaving room for further upside. A decisive close above 1.3600 would target the July 4 high of 1.3681, with scope for an extension toward 1.3700. On the downside, failure to defend 1.3550 risks a retreat toward the 20-day SMA at 1.3491 and the 50-day SMA at 1.3470.

Market Projections and Longer-Term GBP/USD Outlook

Forecasts for GBP/USD remain divided. MUFG expects sterling to climb to 1.40 by mid-2026, banking on sustained dollar weakness as Fed independence comes under pressure. Credit Agricole takes the opposite view, projecting the pair near 1.33 by late 2026, citing resilient dollar flows. Standard Chartered places GBP/USD in a near-term range of 1.3210–1.3590, pointing to volatility tied to UK fiscal credibility and bond markets. Revisions to U.S. payroll data due this week could cut up to 800,000 jobs from official 2025 figures, deepening skepticism about U.S. economic strength and accelerating dollar losses. This labor drag, combined with Trump’s aggressive tariff structure, fuels the stagflation narrative already weighing on the greenback.

GBP/USD (Cable) Verdict

With GBP/USD anchored around 1.35–1.36, the pair is benefiting from rate divergence as the BoE resists easing while the Fed prepares cuts. Technical signals reinforce a bullish near-term bias, though fiscal jitters in the UK and looming U.S. data volatility keep risks in play. The balance of evidence points to further sterling strength, making GBP/USD a Buy, with targets at 1.36–1.37 in the short term, while longer-term moves depend heavily on U.S. labor revisions and the durability of UK bond market stability.

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