GBP/USD Price Forecast - Sterling Strengthens: Pairs Tests 1.33 as Fed Outlook Shape Market Direction

GBP/USD Pushes Toward 1.33 As Traders Digest UK Budget and Dollar Weakness

The GBP/USD pair trades around 1.3230, rising from November’s low at 1.3011 as investors reassess the UK’s fiscal path and U.S. interest rate outlook. Sterling gained traction after the Autumn Budget presented by Chancellor Rachel Reeves, which introduced higher taxes on corporations and luxury properties. The move, aimed at strengthening public finances and reducing the deficit, boosted short-term investor confidence. The FTSE 100 advanced, UK bond yields dropped, and the pound recovered from a four-week slide.

Fiscal Policy Support Boosts Short-Term Sterling Sentiment

Reeves’ decision to raise taxes on high-value real estate and betting firms—costing companies like Flutter Entertainment over £500 million annually—was perceived as a stabilizing move for fiscal discipline. The government’s commitment to maintaining a budget buffer and capping borrowing through 2029 reassured investors that the UK remains committed to balancing growth and stability. The market reacted with a modest rally in GBP/USD, which climbed above 1.3200, consolidating around the 50-day EMA.

U.S. Inflation, PCE Index, and Fed Rate Cut Expectations Drive USD Moves

The U.S. dollar has weakened modestly as traders anticipate potential Federal Reserve rate cuts in early 2026. The Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, remains critical for near-term sentiment. Recent U.S. data suggest inflation cooling below 3%, while unemployment stabilizes near 4.2%. With bond yields retreating from 5%, the dollar’s appeal as a yield-based safe haven is fading, adding further pressure on USD across majors, especially GBP/USD and EUR/USD.

Technical Outlook: GBP/USD Eyes 1.3350 Resistance While 1.3010 Remains the Line in the Sand

Technically, the GBP/USD pair faces immediate resistance at 1.3350, aligned with the 200-day EMA and a descending trendline from the yearly high of 1.3805. Momentum indicators suggest consolidation, with the RSI hovering near 54. The Supertrend indicator has turned red, reflecting growing bearish pressure. If sellers regain control below 1.3150, a slide toward 1.3010 becomes likely—the lowest level in November and a critical retracement point at the 38.2% Fibonacci level. On the upside, a daily close above 1.3350 could trigger acceleration toward 1.35 and potentially 1.37 if Fed easing accelerates.

Economic Divergence Between the UK and U.S. Fuels Range Trading

Despite a stronger fiscal position, the UK economy continues to show uneven growth, with GDP expansion near 1.5% annually and inflation still elevated at 3.6%. The Bank of England remains cautious, maintaining policy rates above 4.75%, limiting domestic credit growth. Across the Atlantic, U.S. economic activity shows resilience, but disinflationary signals strengthen the case for monetary easing. This divergence leaves GBP/USD trapped in a medium-term range, fluctuating between 1.30 and 1.33.

Market Positioning and Short-Term Sentiment

Speculative positioning in futures data indicates hedge funds trimming dollar longs while increasing moderate pound exposure. The pair’s 3-month implied volatility stands at 7.4%, slightly below the 2024 average, signaling reduced fear of sharp moves. The stabilization in UK bond yields near 4.1% contrasts with falling U.S. yields, narrowing the rate differential and favoring sterling strength over the medium term.

Macro Events Ahead: PMI and Housing Data Set to Define Direction

Upcoming data on UK manufacturing and services PMI will clarify whether the recent rebound in business activity is sustainable. At the same time, the Nationwide and Halifax house price indexes are expected to reveal whether housing affordability is deteriorating under high mortgage rates. In the U.S., traders await the next PCE inflation update, which could decide whether the Fed signals an earlier policy pivot.

Trading Outlook for GBP/USD: A Tense Balance Between Fiscal Optimism and Technical Resistance

The short-term bias for GBP/USD leans mildly bullish as long as the pair holds above 1.3150. However, the absence of strong U.S. weakness and the bearish flag structure keep traders cautious. The optimal tactical approach favors buying dips near 1.3120–1.3160 with targets at 1.3350, while stops below 1.3010 define downside risk.

Final Assessment: GBP/USD Classified as Hold with Mild Bullish Bias

Considering the combination of fiscal discipline in the UK, cooling U.S. inflation, and technical resilience above 1.3150, the GBP/USD (FX:GBPUSD) pair is currently rated Hold with a bullish bias. Sustained closes above 1.3350 would open a path toward 1.35, while failure to defend 1.3010 would reintroduce bearish momentum toward 1.2850. Investors should closely monitor incoming macro data and dollar index trends as catalysts for the next decisive move.

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