GBP/USD Price Forecast - Pound to Dollar Climbs to 1.3500 as Weak U.S. Jobs Data and Fed Cut Bets Undermine Dollar

GBP/USD Holds Near 1.3500 as Dollar Weakness and Shutdown Risks Weigh

The GBP/USD pair is clinging to gains around 1.3490–1.3500, extending its weekly advance after five consecutive sessions in positive territory. Sterling’s resilience comes against a backdrop of broad-based U.S. Dollar Index (DXY) weakness, which slid toward 97.70–97.75, pressured by political paralysis in Washington and deteriorating labor data. With the U.S. government shutdown halting economic releases, traders are pricing in a 99% probability of a 25-basis-point Federal Reserve rate cut in October, placing the policy rate in the 3.75%–4.00% range.

Labor Market Data Undermines the Greenback

U.S. employment signals have sharply weakened. The ADP private payrolls report showed a loss of 32,000 jobs in September, the steepest drop since March 2023, compared to expectations for a 51,000 gain. Even more troubling, August payrolls were revised from a gain of 54,000 to a loss of 3,000, further underlining a reversal in labor momentum. Wage growth at 4.5% year-over-year was not enough to offset the dismal headline, and with official NFP data delayed due to the shutdown, the ADP miss carries even more weight in shaping expectations.

The soft data comes alongside continued manufacturing weakness. The ISM PMI rose slightly to 49.1 in September, but remained in contraction for a seventh consecutive month. This mix of weakening labor and persistent industrial malaise has convinced markets that the Fed will need to stay dovish, even if Treasury yields continue to provide a defensive bid for the dollar.

BoE Signals Restrictive Bias Despite Inflation Cooling Risks

Across the Atlantic, the Bank of England’s communication continues to support Sterling. Policymaker Catherine Mann warned that inflation remains sticky, despite a series of prior rate hikes, emphasizing that the BoE must not prematurely loosen policy. Deputy Governor Clare Lombardelli echoed caution, noting that inflation shocks cannot be dismissed as temporary.

Still, the central bank acknowledged the risk of inflation eventually undershooting the 2% target. For now, UK inflation stood near 4% in September, above the BoE’s comfort zone. This balancing act — tightening bias without overdoing it — has given Sterling relative strength against the dollar, allowing GBP/USD to defend the 1.3450–1.3500 band even during volatility.

Shutdown Amplifies Dollar Vulnerability

The U.S. government shutdown, with lawmakers failing to secure funding, has shut down the release of crucial economic reports, creating a “data blackout” scenario. Without reliable data, the Fed’s path becomes increasingly uncertain, raising the odds of policy missteps. Historically, periods of fiscal paralysis have driven investors into Treasuries, indirectly supporting the dollar. But this time, with labor and consumption signals already weak, the shutdown amplifies downside risks for the greenback rather than cushioning it.

Technical Levels: Cable’s Battle Around 1.3500

On the charts, GBP/USD is testing the 1.3500 resistance zone, a key psychological pivot aligned with the 200-period moving average on the 4-hour frame at 1.3482. Immediate support lies at 1.3460–1.3467, where the 50-EMA and trendline converge. A decisive break above 1.3537, the September 23rd high, would open the way toward 1.3578 and potentially 1.3638.

Failure to hold the 1.3460–1.3450 region could push the pair back toward 1.3414, the recent swing low. Momentum signals remain constructive — the RSI sits at 60, suggesting bullish control with room to push higher before overbought conditions set in. Candlestick rejections near 1.3535 highlight heavy resistance from sellers, but the steady formation of higher lows supports the view that buyers remain in command for now.

Institutional and Positioning Dynamics

Institutional flows have also favored Sterling. Hedge funds cut net long positions in the dollar index while selectively increasing GBP allocations, citing both BoE caution and Fed vulnerability as tailwinds. With Treasuries at 97.70 DXY levels, Sterling has been able to reclaim ground lost during September’s pullback.

However, UK fiscal conditions remain fragile. Borrowing overshoots and stagnant growth data continue to raise red flags, tempering the bullish narrative. Investors are not fully committing to long-term GBP exposure, instead treating Sterling as a short-term trade to exploit dollar weakness rather than a structural play.

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