GBP/USD Price Forecast - Sterling to Dollar Steady at 1.34 as Shutdown and Fiscal Risks Cloud Sterling Outlook

GBP/USD Holds 1.34 Amid Political Stalemate and Dollar Resilience

The British pound sterling (GBP/USD) traded around 1.3440 at the end of the week, steady but vulnerable as the prolonged U.S. government shutdown obscured key data such as non-farm payrolls and left investors uncertain about the Federal Reserve’s next steps. With markets flying blind, traders turned to fiscal and political signals in both Washington and London to assess short-term direction. The absence of the jobs report—typically a high-volatility driver—kept trading ranges tight, though the dollar’s stability reflected confidence in U.S. fundamentals. Equities hovered near all-time highs, and Treasury yields stayed firm, suggesting investors still favored U.S. assets despite temporary disruption.

Dollar Fundamentals Stay Strong as Shutdown Masks Data

Credit Agricole’s latest forecast reinforced a medium-term bullish stance on the dollar, projecting GBP/USD to retreat to 1.33 by end-2026. The bank expects a rebound in U.S. growth next year, emphasizing that the Federal Reserve is likely to remain institutionally independent and avoid aggressive rate cuts. Strong capital inflows into U.S. equities and Treasuries—viewed as unmatched globally—should keep the greenback supported. Even with near-term political noise from the shutdown, Credit Agricole argues that the U.S. economy’s structural advantage and lack of credible alternatives will sustain demand for dollar assets.

UK Fiscal Pressure and Budget Risks Keep Pound Capped

In the United Kingdom, the outlook remains clouded by fiscal strain. The government faces a public-debt load exceeding 114 percent of GDP, the highest since World War II, and a 2024 deficit near 5.8 percent. Ahead of the late-November Budget, Chancellor Reeves must navigate a widening funding gap of £20–40 billion, rising gilt yields near 5.6 percent, and strict fiscal rules mandating a falling debt ratio by 2029-30. Markets expect revenue-raising measures rather than major spending increases, possibly including frozen personal allowances, inheritance-tax tightening, and curtailed fuel-duty relief. The pound’s resilience around 1.34 could weaken if early Budget leaks hint at heavier taxation or slower growth assumptions.

Bank of England Balances Caution and Inflation Risks

The Bank of England (BoE) remains cautious on rate policy. With inflation trending lower but the labor market still firm, policymakers are reluctant to deliver large rate cuts. The central bank’s conservative tone contrasts with expectations of a more dovish Federal Reserve later in 2026. Any surprise uptick in wage data or service-sector inflation could keep the BoE on hold longer, indirectly supporting sterling. Yet the market perceives only limited upside for GBP/USD beyond 1.35–1.36, as tightening fiscal policy may dampen domestic demand while U.S. yields remain attractive.

Global Context: Dollar Strength vs. Mixed Risk Appetite

Across G10 FX, the pound underperformed the euro but held firmer than commodity-linked peers. EUR/GBP hovered near 0.8730, showing modest euro strength after better-than-expected revisions to French industrial output. The global backdrop favors the dollar, with most major currencies trading defensively as investors brace for renewed U.S. inflation data once the shutdown ends. Morgan Stanley sees EUR/USD at 1.25 by mid-2026, while MUFG targets 1.26 within 12 months, underscoring a mild dollar correction path—yet Credit Agricole’s opposing call for dollar recovery highlights deep market division.

Technical View: Support at 1.3380, Resistance at 1.3535

Technically, GBP/USD is consolidating between support at 1.3380–1.3410 and resistance at 1.3535–1.3560. A sustained close above the 1.3560 zone could expose 1.3650, while a break below 1.3380 risks a slide toward 1.3300, aligning with Credit Agricole’s year-ahead projection. Momentum indicators have flattened, signaling indecision, though the broader structure still favors gradual downside as long as the pair trades below its 200-day moving average near 1.3580. Traders remain attentive to the upcoming CPI release in the U.S. and potential Budget headlines from the U.K. Treasury for directional clues.

Market Sentiment and Strategic Outlook

Sentiment toward the pound remains fragile. With political noise in France and fiscal uncertainty in London, sterling’s risk premium is unlikely to fade quickly. Investors perceive limited catalysts for a sustained rally, while the dollar continues to benefit from relative macro stability and higher real yields. The next meaningful volatility trigger will likely come from the U.S. CPI print and any BoE commentary regarding future rate normalization.

Verdict: GBP/USD – Hold with Bearish Bias

Given the current fundamentals—solid U.S. inflows, U.K. fiscal headwinds, and a stable BoE stance—GBP/USD (FX:GBPUSD) merits a Hold rating with a bearish bias toward 1.33 over the medium term. Short-term rallies toward 1.35–1.36 are likely to face supply pressure as traders align with forecasts calling for renewed dollar strength into 2026.

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