GBP/USD Price Forecast - GBP to USD Holds 1.3518 as Weak UK PMI and £18B Borrowing Clash With Fed’s Hawkish Cut

GBP/USD Holds 1.3518 After PMI Miss and Fed Hawkish Tilt

Weak UK Data Adds Pressure on Sterling

The British pound remains under strain after the latest UK PMI reports signaled slowing activity. The Composite PMI fell to 51.0, well below expectations of 52.7 and the prior 53.5, showing the expansion of business activity is losing steam. Manufacturing PMI contracted deeper at 46.2 versus consensus 47.0, while services softened to 51.9 from 54.2. These figures underscore the fragility of the UK economy, raising fears that growth momentum is fading just as inflation stays elevated. Sterling’s fiscal backdrop is deteriorating as well, with August borrowing surging to £18B, the largest in five years, and total borrowing already overshooting projections. The increase in gilt yields highlights growing investor concern about fiscal credibility ahead of Chancellor Reeves’ autumn budget in November.

Bank of England’s Stagnant Policy Stance

The Bank of England left rates steady at 4.0%, stressing caution on further cuts despite inflation lingering above its 2% target. Governor Bailey has signaled patience, but the weak data complicates the path. Stagflation risks loom as the economy faces slow growth and sticky inflation, a combination that historically undermines currency performance. UK policymakers face a dilemma: tightening too soon could worsen growth, but further easing risks fueling inflation expectations already reflected in rising wage settlements.

US Data and Federal Reserve Dynamics

Across the Atlantic, the Federal Reserve cut rates by 25bps, its first reduction of 2025, yet Chair Powell balanced it with hawkish commentary, warning of ongoing labor market softness while emphasizing commitment to price stability. U.S. retail sales and jobless claims confirmed economic resilience, supporting the dollar’s strength. The U.S. Manufacturing PMI eased to 52 from 53, while Services slowed to 53.9 from 54.5, both still comfortably above the 50 expansion threshold. The divergence between a slowing UK economy and a still-expanding U.S. economy has kept GBP/USD capped, with the Fed expected to deliver at least two more cuts this year while maintaining a hawkish narrative.

Market Positioning and Technical Levels for GBP/USD

GBP/USD is consolidating around 1.3518, after a sharp slide last week to 1.3450. On the charts, the pair faces immediate support at 1.3500, followed by 1.3450 and then 1.3400 if selling accelerates. To the upside, bulls need to clear 1.3550, with the next ceiling at 1.3600. The RSI remains under 50, showing lingering weakness despite the recent bounce. Price action is clustered near the 20-day SMA at 1.3523, and a sustained push below the 100-day SMA at 1.3481 would hand momentum back to sellers. Meanwhile, the heatmap shows Sterling has gained 0.35% vs USD this week but underperformed against the euro, highlighting selective strength in broader FX markets.

Key Events on the Horizon

Attention now turns to Fed Chair Powell’s next remarks and scheduled speeches from officials including Michele Bowman and Raphael Bostic. Markets are pricing a 90% probability of another 25bps cut in October, down slightly from 92% just days ago. Any dovish shift in rhetoric could relieve some pressure on GBP/USD. In the UK, the November budget will be decisive for fiscal credibility, while upcoming prints on inflation, retail sales, and consumer confidence will guide expectations for BoE action into year-end. The political dimension also matters, as public pressure grows on the government to manage rising debt without sparking further austerity.

Verdict — GBP/USD Faces Fragile Balance at 1.35

With GBP/USD trading at 1.3518, the cross sits on a knife edge. UK fiscal slippage and softening PMIs argue for weakness, while Fed rate cuts and policy divergence give Sterling room to resist deeper declines. The key band of 1.3480–1.3550 remains pivotal: a sustained break below 1.3480 exposes 1.3350, while a push above 1.3600 could open the door to 1.3720, the September high. For now, the bias is Hold, with downside risks toward 1.3400 unless fiscal clarity and stronger UK data emerge to rebuild confidence in Sterling.

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