GBP/USD Price Forecast - GBP to USD Slips to 1.3466 as BoE Holds, Fed Cuts, and UK Inflation Stays Stubborn at 3.8%

GBP/USD Under Pressure After BoE Holds at 4% While Fed Cuts to 4.00–4.25%

The GBP/USD pair slipped back below 1.3600 and then retreated further toward 1.3466, losing over 0.65% in the session, after the Bank of England opted to keep rates unchanged at 4% in a 7–2 vote. The U.S. Federal Reserve meanwhile delivered a 25 bps cut, lowering its target to 4.00–4.25%, and signaled as much as 50 bps more easing by year-end. This policy divergence has kept the U.S. dollar firm, with the DXY index climbing above 97.25, while the pound struggles to hold momentum.

Inflation and Wages Keep the BoE Trapped While Fed Turns Dovish

UK inflation held at 3.8% in August, with core prices up 3.6% year-on-year, far above the Bank of England’s 2% target. The persistence of price pressures, combined with slowing wage growth, is limiting the central bank’s room to maneuver. Policymakers acknowledged disinflationary progress but stressed that cuts would be gradual and data-dependent. Across the Atlantic, Jerome Powell highlighted labor market weakness as justification for preemptive cuts, with markets now pricing a 92% chance of another Fed reduction in October. This clear divergence is weighing on GBP/USD, which fell nearly 0.71% for the week.

Retail Sales Surprise Fails to Lift GBP/USD

UK retail sales excluding fuel rose 0.8% month-on-month in August, well above expectations of 0.3%, following a 0.4% gain in July. Despite stronger-than-expected consumer data, GBP/USD failed to rally, instead extending losses toward a two-week low. Traders remain skeptical of UK resilience, noting that high inflation distorts nominal sales and that consumers may simply be paying more for fewer goods. The inability of positive macro data to support the pound underscores the dominance of monetary policy and political risks in driving sentiment.

Political Turmoil Adds Risk Premium to British Assets

The pound’s weakness has coincided with heightened domestic political uncertainty, feeding a risk premium into UK assets. Analysts noted that despite macroeconomic data favoring the UK over the U.S. on wages and hiring, the currency has underperformed. GBP/USD’s retreat toward 1.3500 reflects investor caution, as confidence in UK governance and fiscal discipline continues to erode. The FTSE100 has also softened, suggesting broad skepticism across both currency and equity markets.

Technical Landscape Shows Key Support and Resistance Levels

From a technical perspective, GBP/USD’s rejection near 1.3725, its highest level since July 2nd, confirms the inability to break the 1.3800 ceiling that has capped rallies since 2022. Initial downside targets sit at 1.3561 and 1.3460, with a break lower opening the path to 1.3332 and possibly 1.3140. Longer-term charts show that the rise from 1.3051 (2022 low) toward 1.3787 may have completed, with the current move forming the third leg of a corrective pattern. A decisive move below the 55-week EMA at 1.3146 would confirm medium-term bearishness. On the upside, reclaiming 1.3725–1.3800 is critical for any sustainable recovery.

Comparisons with EUR/GBP Highlight Sterling Weakness

The cross EUR/GBP climbed toward 0.8710, just 40 points shy of two-year highs, underscoring euro strength relative to the pound. With GBP/USD sliding and EUR/GBP pressing higher, Sterling’s underperformance is broad-based, not limited to the dollar. This reflects diminished investor confidence in UK-specific fundamentals, particularly political uncertainty layered over sticky inflation.

Market Positioning and Sentiment Toward GBP/USD

Speculative flows show traders are cautious on Sterling. Despite relatively stable UK macro data, leveraged funds have added to short positions in GBP/USD, citing uncertainty over BoE policy direction and elevated political risk. The dollar’s safe-haven appeal has intensified after the Fed’s dovish pivot, paradoxically boosting demand for USD as global risk appetite falters.

Medium-Term Outlook for GBP/USD

With the Fed expected to cut further and the BoE stuck in a holding pattern, the relative rate differential looks set to widen in the dollar’s favor. GBP/USD’s inability to hold above 1.3700 reinforces downside pressure, while inflation above target prevents the BoE from joining the Fed in cutting aggressively. As such, GBP/USD appears vulnerable to another leg lower, particularly if U.S. yields remain elevated near 4.14% and political headwinds in the UK persist. At current levels, the setup skews bearish, with near-term rallies likely to be sold until evidence of policy convergence or improved UK stability emerges.

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