GBP/USD Price Forecast - Pound Holds 1.3102 as U.K. Fiscal Confidence and Fed Division Keep Sterling Firm

GBP/USD Holds 1.3102 as Sterling Faces U.K. Budget Uncertainty and Fed Split Dampens Dollar Momentum

The British pound (GBP/USD) closed the week at 1.3102, trading within a tight range between 1.3060 and 1.3155, as investors weighed rising U.K. fiscal credibility against shifting U.S. monetary policy expectations. The pair remains above the key 1.3000 psychological floor, which has repeatedly attracted buying interest since early November. Sterling’s resilience continues to reflect a repricing of fiscal risks and recalibration of rate expectations ahead of the U.K. Autumn Budget on November 26 and the Bank of England (BoE) meeting on December 18.

Pound Supported by Fiscal Reforms and Market Credibility Restoration

The market’s recent willingness to defend GBP/USD near 1.3000 stems from signs of improved investor confidence in the U.K.’s fiscal trajectory. Chancellor Rachel Reeves’ updated fiscal framework has reduced fears of excessive borrowing and restored partial market trust in the Treasury’s long-term discipline. After a turbulent summer in which fiscal pessimism drove Sterling toward 1.2600, investors are now pricing in a more stable path for government spending and borrowing. The Office for Budget Responsibility’s (OBR) upcoming forecasts are expected to project a deficit-to-GDP ratio of 4.1%, down from 4.7% earlier in 2025.

This fiscal adjustment coincides with a soft rebound in economic data. U.K. retail sales dropped in October, but the contraction was smaller than forecast at -0.1% MoM, while inflation continues to trend lower at 3.8% YoY, its lowest level since 2021. The combination of easing inflation and gradual fiscal credibility improvements has kept Sterling buoyant, offsetting weak PMI readings and mixed industrial output.

Bank of England Rate Outlook: Market Doubts Full Easing Cycle

Markets are now fully pricing a 25-basis-point BoE rate cut at the December 18 meeting, followed by another in mid-2026, but not all Monetary Policy Committee (MPC) members agree with that path. Recent comments from hawkish officials such as Catherine Mann and Jonathan Haskel highlighted that inflation remains “persistent in services and wages,” indicating resistance to a rapid easing cycle. Traders are starting to question whether the BoE can deliver as much accommodation as currently priced.

If rate-cut expectations are pared back in December, it could provide an additional layer of support for GBP/USD, potentially pushing the pair toward 1.3250–1.3300. Market-based probabilities from CME’s BOEWatch tool currently show a 73% chance of a December cut but only 42% for a follow-up move in Q2 2026, down from 56% a week ago.

Dollar Side: Fed Division and Slowing U.S. Momentum Weigh on USD

On the U.S. side, the Dollar Index (DXY) ended the week slightly lower at 100.22, as markets reacted to conflicting messages from Federal Reserve officials. New York Fed President John Williams stated there is “room for adjustment” and hinted at a potential rate cut in the December 9–10 meeting, aligning with dovish commentary from Governor Stephen Miran. Both helped push December rate-cut odds to 71%, up sharply from 31% earlier in the week. However, hawkish remarks from Boston Fed’s Susan Collins and Dallas Fed’s Lorie Logan, who both advocated maintaining a “restrictive stance for longer,” tempered the reaction.

U.S. economic data painted a mixed picture. The S&P Global Manufacturing PMI eased to 51.9 in November (from 52.5), while the Services PMI rose slightly to 55.0, confirming ongoing sectoral divergence. Meanwhile, nonfarm payrolls rose by 119,000, double the expected 50,000, yet the unemployment rate ticked up to 4.4%, the highest since 2021. The University of Michigan’s consumer sentiment index climbed to 51.0, but inflation expectations continued to fall, with one-year outlook at 4.5% and five-year at 3.4% — reinforcing the case for policy easing in early 2026.

These signals reduced the dollar’s ability to extend its rally. With market participants already pricing most of the Fed’s policy normalization, GBP/USD retained its upward bias as U.S. yields stabilized. The 10-year Treasury yield hovered near 3.91%, down from 4.12% the previous week, providing additional room for Sterling recovery.

Technical Picture: GBP/USD Range-Bound but Momentum Favors Bulls

Technically, GBP/USD remains in a medium-term consolidation pattern. The pair’s support at 1.3008 remains pivotal; a daily close below this level could reopen downside toward 1.2830, corresponding to the 138.2% Fibonacci projection of the 1.3787–1.3140 leg. However, repeated rebounds from the 1.3050 zone underscore persistent demand.

On the topside, resistance is seen at 1.3247, marking a former support level from early September. A sustained break above 1.3250 would confirm that the corrective move from 1.3787 has likely ended and signal potential recovery toward 1.3380 and 1.3475. The 55-week EMA, currently at 1.3184, has become a tactical pivot point — maintaining weekly closes above it would strengthen the bullish case.

Momentum indicators provide neutral-to-positive signals. The RSI stands at 52, while MACD lines are converging, suggesting possible bullish crossover in early December. Volume has contracted 8% week-over-week, consistent with pre-budget caution but supportive of volatility expansion once policy clarity emerges.

Long-Term Sterling Dynamics and Structural Context

The bigger picture for GBP/USD remains shaped by the broader dollar cycle and long-term U.K. fundamentals. The 2022 low of 1.0351 continues to represent the structural bottom of the post-Brexit depreciation wave. From that trough, the recovery to 1.3787 was largely corrective, but a sustained defense above 1.2760 (trendline support) would preserve the medium-term bullish bias.

In contrast, the long-term resistance at 1.4248–1.4480 — corresponding to the 38.2% retracement of the 2.1161 to 1.0351 decline — remains formidable. Only a decisive monthly close above that range would indicate a structural reversal of the 15-year downtrend. For now, the pattern remains corrective within a broader bearish super-cycle, though fiscal stabilization could gradually narrow the performance gap versus the dollar.

Comparative Currency Performance and Risk Appetite

Sterling’s relative strength against the dollar contrasts with its softer tone versus the euro, as EUR/GBP closed the week near 0.8789. This divergence reflects distinct policy expectations: the European Central Bank (ECB) maintains a “steady stance,” while the BoE is preparing to ease modestly. Meanwhile, global risk appetite continues to influence GBP performance, with equities in Europe and the U.S. showing resilience despite tariff and inflation concerns.

The FTSE 100 ended the week down 0.3%, while the S&P 500 rose 0.5%, leaving the GBP/USD correlation with equity risk around 0.71 — high by historical standards. Traders now view Sterling as a barometer for risk sentiment, particularly in the absence of major U.K. data before the Budget.

Trading News Verdict: HOLD — Bullish Bias Above 1.3000 Support

Sterling’s ability to stay firm above 1.3000 despite mixed data underscores resilient market confidence. Fiscal reforms have softened prior skepticism, while dovish Fed rhetoric has capped dollar strength. The next catalysts — the U.K. Autumn Budget and BoE’s December decision — will define whether GBP/USD can sustain momentum toward 1.3250–1.3300 or revert to the 1.2830–1.2900 correction zone.

Current Price (GBP/USD): 1.3102
Support Levels: 1.3008 / 1.2830 / 1.2760
Resistance Levels: 1.3247 / 1.3380 / 1.3475
RSI: 52 (Neutral to Bullish)
Fed Cut Probability: 71% for December
BoE Cut Probability: 73% for December 18
10-Year Yield (U.S.): 3.91%
U.K. CPI: 3.8% YoY
Fiscal Deficit Projection: 4.1% of GDP

Trading News Verdict: HOLD (Bullish Bias Above 1.3000) — Sterling remains resilient within a defined range, supported by fiscal credibility and capped by U.S. policy uncertainty. A confirmed breakout above 1.3250 would signal a renewed bullish leg, while sustained weakness below 1.3000 would shift momentum bearish toward 1.2830.

That's TradingNEWS