GBP/USD Price Forecast: Pound Slumps to 1.3116 as Fiscal Fears and Fed Hawkishness Deepen Selloff

GBP/USD Extends Slide to Six-Month Lows as Fiscal Strains and Fed Tone Collide

The GBP/USD pair has plunged to 1.3116, marking its weakest level since April as a hawkish Federal Reserve stance collides with growing UK fiscal anxiety. The pound’s fourth straight day of declines underscores deep market unease over the Bank of England’s policy paralysis, a surging U.S. dollar, and expectations that the upcoming UK Autumn Budget will tighten spending rather than stimulate growth. Sterling has now fallen over 2% through October, and traders are eyeing a potential test of the 1.3080–1.3000 zone if downside momentum persists.

Fed’s Hawkish Pause Strengthens the Dollar and Squeezes GBP/USD

The Federal Reserve’s recent 25 bps rate cut, initially viewed as a dovish sign, turned sharply hawkish after Chair Jerome Powell warned that further easing in December was “not a foregone conclusion.” This recalibration pushed the U.S. Dollar Index (DXY) to 99.70, its highest in nearly three months, driving broad-based gains against major currencies. Futures pricing of another cut in December dropped from 100% to 70%, flattening the yield curve and tightening financial conditions. The dollar’s strength has crushed the pound’s fragile recovery attempts, with investors shifting capital toward higher-yielding U.S. assets while the UK remains stuck in policy indecision.

BoE Policy Dilemma and UK Economic Strain Erode Sterling Confidence

The Bank of England faces a dilemma as headline inflation remains at 3.8% year-over-year, nearly double its 2% target, while unemployment has risen to 4.8%, its highest since mid-2021. GDP growth for Q2 came in at a weak 0.3%, reflecting stagnation. Despite mounting pressure for stimulus, the BoE is widely expected to hold rates at 4.00% in the November 6 meeting. Market consensus now sees the first BoE rate cut delayed until February 2026, with policymakers fearing further pound depreciation could worsen imported inflation. This combination of sticky prices and slowing growth has revived concerns of stagflation, a toxic mix last seen during the late 1970s.

Fiscal Headwinds Deepen as UK Faces £30B Budget Gap

The looming Autumn Budget on November 26 adds another layer of uncertainty. The Office for Budget Responsibility (OBR) projects a £20 billion productivity shortfall and £7.2 billion in higher-than-expected borrowing in the first half of 2025, leaving the Chancellor with limited fiscal room. Rachel Reeves is cornered between keeping her no-tax-rise pledge and closing a widening deficit that could exceed £30 billion. Any sign of aggressive fiscal tightening could weigh further on domestic growth expectations and investor sentiment. Sterling traders are now demanding higher yields on gilts, reflecting greater risk premiums to hold UK-denominated assets amid this policy uncertainty.

Technical Pressure Builds Below 1.3140 as Market Eyes 1.3080–1.3000 Support

Technically, GBP/USD has broken through several critical support zones. The 1.3140 region—marking the 38.2% Fibonacci retracement of the 1.2099–1.3788 rally—failed to hold, confirming a medium-term bearish continuation. The next layer sits at 1.3080–1.3088, aligned with the 100% extension of the June decline and the 52-week moving average. A decisive close below this threshold would open a path toward 1.2940, the 50% retracement of the yearly range. Momentum indicators back the bearish tone: the RSI hovers near 30, showing oversold but not exhausted conditions, while price action remains capped below the 20-day and 50-day moving averages. Short-term rebounds toward 1.3200 or 1.3280 are likely to face heavy selling pressure as traders position for deeper downside.

U.S.–China Trade Sentiment Adds Volatility but Favors the Dollar

Hopes of improved U.S.–China relations offered brief relief earlier in the week after President Trump hinted at renewed energy purchases from Alaska, but traders quickly dismissed the optimism. With China’s PMI contracting to 49.0, its seventh straight month of decline, and U.S. sanctions on Russian oil limiting supply flows, risk sentiment remains fragile. The stronger dollar environment has persisted despite intermittent risk-on sessions, underscoring global preference for U.S. liquidity amid uncertainty.

Market Outlook: Further Downside Bias Dominates GBP/USD

With U.S. yields holding near cycle highs and UK macro fundamentals deteriorating, the pound remains vulnerable to further weakness. Market positioning shows elevated short interest on GBP/USD, suggesting continued bearish sentiment through early November. Unless the Bank of England surprises with dovish guidance or the U.S. data turns sharply weaker, upside potential appears limited. The pair could consolidate briefly above 1.3080, but a break lower would likely extend the decline toward 1.2940–1.3000, marking new multi-month lows.

Verdict: Bearish — GBP/USD likely to test 1.3000 before any meaningful recovery as fiscal and policy pressures intensify

That's TradingNEWS