GBP/USD Price Forecast - Pound Trades at $1.3080 as Fed Dovish Hints Collide with UK Fiscal Worries

GBP/USD Holds Near $1.3080 as Traders Balance Fed Dovish Signals and UK Fiscal Fragility

The GBP/USD pair remains trapped within a tight range around $1.3080, reflecting an uneasy equilibrium between optimism for a Federal Reserve rate cut in December and renewed anxiety about the UK’s fiscal trajectory ahead of the Autumn Budget. Despite firm intraday momentum earlier this week — when the pair touched a session high of $1.3193 — sellers quickly reasserted control, pushing sterling lower as a confluence of macroeconomic and technical headwinds erased early gains.

Fed Division and Mixed U.S. Data Keep USD Resilient

The dollar’s stability is rooted in a split Federal Reserve narrative. Dovish members like John Williams and Stephen Miran publicly supported a 25-basis-point cut at the December meeting, pointing to subdued inflation expectations — now at 4.5% for one year and 3.4% for five years, according to the latest University of Michigan survey. In contrast, Dallas Fed’s Lorie Logan and Boston Fed’s Susan Collins insisted that rates should remain restrictive “for a time,” warning that premature easing risks reigniting inflationary pressure.

Economic data reinforced this standoff. The S&P Global U.S. Manufacturing PMI slipped slightly from 52.5 to 51.9, while Services PMI rose from 54.6 to 54.8, revealing a steady private-sector expansion despite tight financial conditions. The composite index above 54.0 suggests economic momentum strong enough to delay aggressive easing. This data buoyed the U.S. Dollar Index (DXY) near 100.32, keeping the greenback firm against major peers.

UK Inflation Cooldown and Weak Retail Sales Trigger BoE Dovish Shift

Across the Atlantic, the pound’s weakness stems from deteriorating domestic data. The UK Consumer Price Index (CPI) rose 3.6% YoY in October, down from 3.8%, marking the first deceleration in five months. The softer reading heightened expectations of a Bank of England rate cut in December, with futures now pricing an 85% probability, up from 80% before the CPI release.

Retail figures added to the pressure. October retail sales fell 1.1% MoM, well below the flat consensus, while annualized growth dropped to 0.2%, signaling waning consumer demand. The heaviest decline was in textiles and footwear (-3.3%), a clear sign of shrinking discretionary spending. Traders now see 63 bps of BoE easing by end-2026, compared with 59 bps before the report.

PMI Divergence Highlights Divergent Economic Trajectories

The latest UK composite PMI dropped sharply from 52.2 to 50.5, showing near-stagnation in private-sector growth. The manufacturing index edged up modestly, but services — which drive 80% of UK GDP — slipped toward contraction territory. Meanwhile, the U.S. composite PMI at 54.8 underscored stronger transatlantic divergence, tightening the yield spread and capping sterling rallies near $1.3100.

Fiscal Concerns and Autumn Budget Expectations Weigh on Sterling

Investor focus has shifted to Chancellor Rachel Reeves’ Autumn Budget, due November 26, amid speculation of income tax threshold freezes through 2029 to bridge a £22 billion fiscal gap. The government’s decision to maintain austerity while the economy cools threatens to restrain growth into early 2026. Fiscal tightening — combined with easing inflation — strengthens the argument for a BoE policy pivot but simultaneously limits upside for GBP/USD, as foreign investors demand higher returns to hold UK assets.

Technical Breakdown: Death Cross Threatens GBP/USD Momentum

Technically, GBP/USD remains structurally bearish. The pair trades below all key moving averages: 20-day SMA at $1.3146, 50-day at $1.3320, 100-day at $1.3392, and 200-day at $1.3298. The 50-day SMA is on the verge of crossing below the 200-day, forming a Death Cross, a historically reliable bearish indicator.

Momentum oscillators confirm downside pressure. The Relative Strength Index (RSI) sits at 36.5, below the neutral line, while MACD remains negative, signaling sustained selling. Resistance levels are clearly defined at $1.3140, $1.3220, and $1.3280, while immediate support rests at $1.3050, followed by $1.3000 and the critical April swing low at $1.2764. A decisive break below $1.3050 would open the path to $1.2890, coinciding with the March 2024 high-week close, and potentially $1.2745–$1.2770, the 61.8% Fibonacci retracement zone of the yearly range.

Global Positioning and Currency Flow Dynamics

According to CFTC data, net long sterling positions declined 17% week-over-week, reflecting institutional repositioning toward the dollar ahead of U.S. GDP and PCE Core releases. ETF data also reveal a withdrawal of $85 million from GBP-focused funds in five days, marking the sharpest weekly outflow since May.

In currency performance terms, the pound rose 0.33% vs. EUR, fell 0.63% vs. USD, and gained 1.09% vs. CHF, confirming relative strength against European peers but weakness against the dollar bloc. This pattern is consistent with a risk-averse environment where high-beta currencies lose appeal to U.S. yields.

Market Sentiment: Risk Aversion Favors USD Dominance

Despite brief intraday recoveries toward $1.3120, the overall tone remains defensive. U.S. Treasury yields near 4.08% on the 10-year note and resilient U.S. equities reinforce the dollar’s dominance. Traders interpret any GBP/USD rallies above $1.3100 as “sell-on-bounce” opportunities, as confirmed by institutional research from UOB Group, projecting a $1.3045–$1.3120 trading corridor short term.

Meanwhile, nonfarm payrolls (NFP) for September rose 119,000, beating expectations of 50,000, while unemployment edged up to 4.4%, hinting at a labor market cooling but not collapsing — a combination supporting the Fed’s gradualist stance. The CME FedWatch Tool now assigns a 35% probability of a December rate cut, sharply down from 70% a week ago.

Outlook: GBP/USD Poised Between Fiscal Caution and Fed Ambiguity

With both central banks signaling policy inflection points, the GBP/USD trajectory hinges on which side moves first. The Fed’s inflation moderation offers limited space for easing, while the BoE faces mounting political and consumer pressure to act. As long as the fiscal drag and technical bearish structure persist, sterling’s rallies will remain capped near $1.3150–$1.3200, while downside risk intensifies below $1.3000.

Verdict:

• Short-Term (2–4 weeks): Sell Bias — Target $1.3000, Stop $1.3145

• Medium-Term (3–6 months): Hold — Range $1.29–$1.33 pending BoE action

• Long-Term (12 months): Cautious Buy — Recovery potential toward $1.35 if fiscal tightening and inflation stabilize

Sterling’s near-term story remains one of fragility — sustained only by external dovish momentum from the Fed rather than internal strength. The GBP/USD pair sits at a pivotal crossroads where $1.3050 marks not just a technical floor, but the dividing line between resilience and renewed capitulation.

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