GBP/USD Price Forecast - Sterling Steadies at 1.3450, Fiscal Worries Set Tug-of-War

GBP/USD Rebounds to 1.3450 as Fed Dovish Signals Collide With Weak UK Growth Outlook

The British Pound has staged a steady comeback this week, with GBP/USD advancing toward 1.3450 after rebounding from Tuesday’s low of 1.3250. The move comes as investors weigh softer U.S. growth signals against the U.K.’s fragile economic backdrop. The pair has now posted three consecutive days of gains, finding technical support from a weaker U.S. Dollar Index (DXY), which dropped to 98.10—its lowest in three months—amid dovish remarks from Federal Reserve officials and the ongoing U.S. government shutdown.

Fed’s Dovish Turn Amplifies Pressure on the Dollar

The Federal Reserve’s Beige Book underscored an economic slowdown in the U.S., pointing to reduced consumer spending and rising layoffs. Fed Governor Christopher Waller and Board member Stephen Miran both hinted at further rate cuts in upcoming meetings, fueling market expectations for at least two 25-basis-point reductions by December. This pivot toward easing monetary policy has sharply weakened the Greenback, which now faces its fourth straight day of declines. The 16-day federal shutdown has only intensified uncertainty, delaying crucial data releases and clouding the Fed’s near-term outlook. Traders are now pricing a nearly 100% probability of another rate cut at the next FOMC meeting.

Sterling’s Recovery Driven by Soft Dollar, but Capped by Domestic Weakness

While Sterling’s rebound has been notable, its momentum is tempered by domestic headwinds. U.K. GDP growth for August came in at a meager 0.1%, while July’s figure was revised down to -0.1%, signaling stagnation in output. Employment data earlier in the week revealed rising joblessness, reinforcing expectations that the Bank of England (BoE) will continue its gradual rate-cut path into 2026. Market participants are now split on whether the BoE will trim rates again before the Autumn Budget in November, as fiscal challenges loom large and borrowing costs remain elevated. Despite these pressures, the Pound has held firm thanks to the Dollar’s weakness, trading consistently above the 20- and 50-day moving averages since midweek.

Technical Setup: Bulls Eye 1.35 but Resistance Looms

The technical outlook for GBP/USD reflects cautious optimism. The pair has reclaimed the 100-period SMA on the four-hour chart and broken above the descending trendline that had capped upside momentum since early September. Oscillators show improving traction, with the RSI near 63—still below overbought territory—indicating room for moderate continuation. A decisive break above 1.3485, the 50% Fibonacci retracement of the recent downtrend, could unlock a move toward 1.3550. Immediate support sits at 1.3400, followed by 1.3350 and 1.3300. Failure to defend these zones could expose the pair to a retest of the 1.3250 trough. Still, short-term momentum remains bullish as long as price action holds above 1.3380.

Market Sentiment Anchored by Fiscal and Trade Uncertainty

Beyond the technical setup, sentiment around the Pound remains fragile. The U.K. faces a challenging fiscal period, with debt-to-GDP levels exceeding 100% and the government preparing its Autumn Budget under pressure to stimulate growth while preserving fiscal discipline. Meanwhile, U.S.-China trade tensions are flaring once again after Washington threatened tariffs on rare earth exports, worsening global risk sentiment. The combination of geopolitical friction and a policy stalemate in Washington has weakened the Dollar broadly, but investors remain cautious about committing to risk assets, limiting the Pound’s upside potential.

Outlook and Price Target

Given the interplay between a dovish Fed and a data-constrained BoE, GBP/USD appears poised to trade within a 1.3350–1.3550 range over the short term, with a potential upside extension to 1.3600 if U.S. data continues to deteriorate. A sustained break above 1.35 could trigger a new bullish phase toward 1.3680, supported by softening U.S. yields and lower Treasury returns. Conversely, renewed fiscal pessimism in the U.K. or a rebound in the Dollar Index above 99 could drag the pair back to 1.33. At current levels, the risk-reward profile favors cautious accumulation, making the Pound a short-term buy against the Dollar as long as it sustains above 1.3380 support and U.S. monetary policy remains tilted toward easing.

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