GBP/USD Price Forecast: Sterling Jumps Above 1.3500 as Fed Tilt Spurs Relief Rally

GBP/USD Slides Below 1.3400 on Fed Repricing and Sterling Weakness

The GBP/USD pair extended losses into late August, dropping under 1.3400 to mark a fresh two-week low after the Federal Reserve minutes reduced expectations for an aggressive September rate cut. The U.S. Dollar Index surged to 98.80, its highest in ten days, strengthening the Greenback against sterling. Odds for a 25 basis-point Fed cut slipped to 73% from 85% a week earlier, with Fed officials voicing concern that inflation above 3% remains too far from target. The hawkish repricing weighed on GBP/USD, dragging it to its fifth consecutive daily loss, with pressure mounting on the pair’s 1.3400 pivot support

UK Services PMI Supports Sterling but Inflation Keeps BoE Cautious

The UK’s flash PMI report for August offered some encouragement, as the Composite index rose to 53.0, its strongest in months. The data showed services demand rebounding with new business growth, partly offsetting July’s contraction. Yet sterling’s upside remained capped by sticky inflation, with July CPI surprising at 3.8% year-over-year, both headline and core measures rising faster than expected. The Bank of England had already cut rates by 25 bps to 4% earlier in the month on a tight 5–4 vote, and policymakers now face a bind between easing pressure on the labor market and preventing entrenched price growth. National Insurance increases have added further costs for employers, risking slower hiring and rising redundancies.

Powell’s Jackson Hole Speech Lifts GBP/USD Back Above 1.3500

Sterling staged a sharp rebound after Fed Chair Jerome Powell’s comments at Jackson Hole shifted tone toward renewed easing. Powell highlighted “downside risks to the labor market” while acknowledging tariffs could add a one-time inflationary impulse, a mix that stirred stagflation worries. The shift pushed odds of a September cut back to 90%, sparking a relief rally in GBP/USD beyond 1.3500. Momentum carried the pair toward resistance at 1.3550, opening the door to a retest of the August peak at 1.3594. Yet, the rally’s sustainability hinges on whether the pair can hold above the psychological 1.3500 handle. Failure there would quickly return focus to demand zones at 1.3482 and 1.3450.

Technical Outlook: 1.3400–1.3600 Defines the Battle Zone

Price action on the daily chart shows sterling consolidating in a wide band after being rejected from July highs near 1.3789. A flat 200-day moving average around 1.3000 remains a longer-term magnet if downside resumes, with the first major checkpoint at 1.3190. Short-term, sustaining trade above the 20-day moving average near 1.3410 keeps sterling constructive, but RSI below 50 earlier in the week underscored the bearish bias until Powell’s dovish pivot revived buying flows. A clean break over 1.3650 would turn focus back to the July top at 1.3789, while loss of 1.3310 would revive selling pressure targeting 1.3142.

Dollar Support from U.S. Data and Geopolitical Tensions

The Greenback also drew backing from stronger U.S. PMI releases, with manufacturing climbing to 53.3 from 49.8 and services to 55.4 against consensus 54.2. Weekly jobless claims at 235K showed only mild labor softness, not enough to justify aggressive cuts. Combined with geopolitical safe-haven demand from intensifying Russian strikes on Kyiv and fading prospects for peace talks, dollar demand remained resilient. However, Powell’s willingness to tilt dovish despite inflation risks tempered the Greenback’s advance and left GBP/USD locked in a volatile tug-of-war around 1.34–1.35.

Sterling’s Inflation Battle and BoE Dilemma

The Bank of England faces its most complex balancing act in years. Inflation near 3.8% y/y far exceeds the 2% target, yet unemployment pressures are building. The narrow 5-4 vote in August to cut rates reflected deep divisions inside the MPC. If UK CPI continues to climb in the September report, calls for further easing may stall, leaving rates stuck at 4% despite slowing business confidence. Traders now view the BoE as constrained—able to cut cautiously but not without risking another inflation overshoot. This uncertainty continues to cap sterling upside against a dollar still bolstered by higher U.S. yields.

Market Sentiment and Range Consolidation

Flow data shows GBP/USD boxed into a tight near-term range, with demand emerging on dips near 1.3400 while sellers quickly fade rallies into 1.3550–1.3600. A sustained break in either direction will likely define September’s trade. Positioning into Powell’s speech saw leveraged accounts heavily short sterling, with short covering fueling Friday’s squeeze back above 1.35. Without confirmation from fresh economic data, however, the relief may prove fleeting.

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