GBP/USD Price Forecast: Sterling Breaks Below $1.35 as Consumer Confidence Crashes to -19

GBP/USD Forecast: Sterling Breaks Below $1.35 After Labour's By-Election Catastrophe and Consumer Confidence Crashes to -19 — Iran Strikes Supercharge the Dollar's Safe-Haven Bid, and the March 19 BoE Decision Could Push Cable Toward $1.30

Saturday, February 28, 2026 | TradingNews.com

GBP/USD closed Friday at 1.3469, shedding 0.10% on the session, but the modest daily decline masks a week — and now a weekend — that has fundamentally reshaped the outlook for Sterling. The pound dropped below $1.35 for the first time in over two weeks as three separate shocks converged: a political earthquake in the Gorton and Denton by-election that destroyed Labour's credibility in its northern heartland, a GfK Consumer Confidence reading of -19 that came in four points below consensus, and a U.S. core Producer Price Index print of 3.6% year-over-year that undercut any remaining expectations for aggressive Federal Reserve easing. Then on Saturday morning, the United States and Israel launched military strikes against Iran — a development that, when markets reopen Monday, will trigger precisely the kind of risk-off capital flight that sends the dollar sharply higher and Sterling sharply lower. The path of least resistance for GBP/USD points down, and the destination might be a lot closer to 1.30 than the current price suggests.

The Gorton and Denton Earthquake — Labour Lost a Seat It Won By 50% Just 20 Months Ago

The by-election result from Greater Manchester is not a footnote in the GBP/USD story — it is the headline. Green Party candidate Hannah Spencer won with 14,980 votes and a majority of 4,402, capturing 40.7% of the total. Reform UK's Matt Goodwin finished second with 10,578 votes. Labour's Angeliki Stogia came third — third — with 9,364 votes, down catastrophically from 18,555 at the 2024 general election just 20 months ago. Labour had won the seat with more than 50% of the vote in 2024. The Greens polled 13.2% then. They tripled their share and took the seat in what political scientist John Curtice described as "a seismic moment," declaring that the future of British politics is now more uncertain than at any point since the end of World War II.

This is the Green Party's first ever parliamentary by-election victory. Several Labour MPs privately branded the night "a catastrophe." Prime Minister Keir Starmer told reporters he would keep fighting "as long as I've got breath in my body" — which is the kind of thing leaders say when the ground is opening beneath them.

For Sterling, political instability translates directly into currency risk. Pound traders are acutely sensitive to leadership uncertainty at Downing Street, particularly when it raises the prospect of a leftward shift in fiscal policy, looser public spending commitments, or a leadership challenge that could paralyze the government during a critical economic period. Rabobank has already flagged the British Pound as one of the most exposed G10 currencies in the coming months, citing the combination of political uncertainty and a central bank that is clearly still cutting rates as a "difficult backdrop for GBP." The Gorton result validates that assessment in real time.

UK Consumer Confidence Collapses — GfK Falls to -19, Missing Forecasts by Four Points

The GfK Consumer Confidence Index fell three points to -19 in February, badly missing the consensus forecast of -15 and reversing the tentative improvements of the previous two months. The Major Purchase Index dropped four points. The Savings Index plunged seven. GfK Consumer Insights Director Neil Bellamy attributed the decline to "weaker perceptions of personal finances, both looking back a year and ahead," and noted that rising job insecurity is hitting younger and lower-income households hardest.

The labor market data reinforces the pessimism. UK unemployment has risen to 5.2%, a post-pandemic high. Youth joblessness has climbed to 16.4% — a figure that explains why consumer-facing businesses are seeing demand destruction and why the Green Party's anti-establishment message found such fertile ground in Manchester. When one in six young adults cannot find work, the political and economic consequences compound. Spending contracts, tax receipts decline, and the Bank of England faces the uncomfortable choice between cutting rates to support growth or holding rates to combat sticky inflation. That tension is the central narrative for GBP/USD through Q1 and Q2 2026.

U.S. Core PPI at 3.6% — Nearly Triple the Estimate, and the Fed Cannot Cut Into This

Friday's U.S. Producer Price Index report was a hawkish shock. Core PPI came in at +0.8% month-over-month versus a 0.3% consensus, with the annual rate accelerating to 3.6% against expectations of 3.0% — up from 3.3% in December. Headline PPI rose 0.5% monthly versus 0.3% expected. The annual headline dipped from 3.0% to 2.9% but missed the more significant decline to 2.6% that forecasters had penciled in. Trade services rose 2.5%, a clear signal that tariff-related cost pressures are flowing through the production pipeline.

The market reaction was nuanced but important for GBP/USD. The dollar initially gained — DXY climbed to approximately 97.85 — but then faded back. The reason: the market is increasingly afraid not of inflation per se, but of stagflation. Growth fears are outweighing inflation fears. The 10-year Treasury yield dropped to 3.961% — a three-month low — despite the PPI shock, because bond investors are pricing recession risk, not inflation risk. Money markets are pricing 56 basis points of Fed easing by year-end, and that pricing was barely changed by the PPI print.

This creates a peculiar dynamic for GBP/USD: the dollar gets safe-haven bid from geopolitics and the hot inflation data prevents the Fed from cutting, but growth fears simultaneously cap the dollar's yield advantage. The net effect is a dollar that grinds higher against weak currencies (Sterling, commodity currencies in a risk-off environment) but struggles against currencies with stronger fundamental backing (the euro, the Swiss franc).

Iran Strikes — The Weekend Catalyst That Changes Everything for Monday's Open

On Saturday morning, President Trump announced that the United States had commenced "major combat operations" against Iran in coordination with Israel. Explosions were confirmed in Tehran and across multiple Gulf states as Iran retaliated with missile strikes on UAE, Qatar, Bahrain, and Kuwait, including U.S. military installations. Trump earlier in the week had said he hadn't decided on Iran but stressed he was "not happy with how they negotiate" and when asked about military force, responded: "I don't want to, but sometimes you have to."

The actions on the ground — the U.S. authorizing departure of non-essential staff from Israel, China urging citizens to evacuate Iran — had already been signaling elevated risk throughout the week. Now the risk has materialized. For GBP/USD, the implications are straightforward: the dollar is the world's primary safe-haven currency, and active military conflict in the Middle East generates precisely the kind of capital flight that benefits the greenback at the expense of every other major currency, particularly those with domestic vulnerabilities like Sterling.

Historical precedent supports the bearish GBP/USD view. During Israel's June 2025 "Operation Midnight Hammer" strikes, cable dropped sharply as risk-off flows overwhelmed any domestic fundamentals. Sterling recovered only after Trump announced a pause. This time, the conflict is broader, the Iranian retaliation more significant, and the proximity to critical oil infrastructure — the Strait of Hormuz carries 20 million barrels per day — raises the specter of an energy price shock that would devastate the UK economy specifically. Britain imports virtually all of its oil and gas. Higher energy costs feed directly into inflation, compress consumer spending, and narrow the BoE's room to cut rates. Every $10 per barrel increase in Brent crude is a direct headwind for Sterling.

The Dollar Index — DXY Tests 97.94 Resistance Five Times in Seven Sessions and Fails

The technical picture for the dollar provides critical context for GBP/USD direction. The DXY tested 97.94 resistance on three consecutive days this week, and for five of the past seven sessions, bulls pressed against that ceiling without breaking through. The 97.94 level carries serious technical weight — it set the lows in April 2025, served as support in October and December, and has been resistance since early February.

Support at 97.33–97.46 has held, maintaining a pattern of higher lows that keeps an ascending triangle formation intact. The four-hour chart shows the dollar coiled and ready to break in one direction or the other. If DXY clears 97.94 to the upside — and Iran-driven risk-off flows could be exactly the catalyst — the breakout targets 98.50+ and would drag GBP/USD toward 1.3300. If the pattern fails and DXY breaks below 97.33, the dollar weakens broadly and GBP/USD could recover toward 1.3560–1.3630.

The DXY ascending triangle's resolution will likely require USD/JPY bulls to make a forward push. That pair shows a lower high following the late-January sell-off, with early positioning suggesting longs are bailing ahead of the 160.00 defense level. The 160 handle has been defended twice — the second intervention triggered a 2,000+ pip reversal. BoJ hawkish bias and intervention risk above 156 create asymmetric risk for yen shorts, which indirectly affects GBP/USD because the two pairs tend to correlate during risk-off episodes.

GBP/USD Technical Structure — A Falling Wedge Trapped Between 1.3035 and 1.3869

The daily chart frames GBP/USD inside a converging structure: an ascending support trendline originating from the 1.3035 low and a descending resistance line from the 1.3869 high. Friday's close at 1.3469 sits almost precisely at the midpoint of that range, with the cluster of simple moving averages around 1.3500 capping upside attempts and indicating fading bullish impulse following the mid-month highs near 1.3800.

The falling wedge formation that has built over the past two weeks is typically approached as a bullish reversal pattern — higher lows developing below a declining resistance line. Resistance at 1.3568 was tested Wednesday and Thursday and held. Support at the 1.3434 swing low is intact but the bullish structure is weaker here than in EUR/USD, which shows a cleaner falling wedge with more convincing higher lows at 1.1748.

Key Technical Levels for GBP/USD — Where the Pain Points Are

Resistance: 1.3530–1.3560 (descending trendline confluence with moving averages), then 1.3630, then 1.3680 where previous highs stalled. A daily close above 1.3560 would be the first sign of bullish life.

Support: 1.3450 immediate, then 1.3400–1.3434 (recent swing lows), then 1.3360 (rising trendline support). A sustained break below 1.3360 would negate the broader bullish structure and open the path to 1.3300 — and below that, to the 1.3035 origin point of the ascending trendline.

The longer-term moving averages still slope upward, which argues against an outright bearish call on a structural basis. But the combination of political shock, consumer confidence collapse, Iran strikes, and hot U.S. PPI data creates a fundamental environment that overwhelms technical support, particularly in the near term.

The Bank of England — March 19 Decision at 80% Probability of a Cut, But the MPC Is Fractured

The next BoE rate decision on March 19 is the single most important scheduled event for GBP/USD over the coming three weeks. Money markets currently price an 80% probability of a 25 basis point cut. The current Bank Rate is 4.50%. A cut would take it to 4.25%, widening the policy divergence against the Fed (which is on hold) and removing another layer of yield support for Sterling.

The MPC is split. Governor Andrew Bailey told the Treasury Select Committee on February 24 that the question is "genuinely open," pointing to services inflation running at 4.4% in January — above the Bank's own 4.1% forecast. Chief Economist Huw Pill struck a hawkish tone, warning that declines in headline inflation caused by temporary factors "should not create a false sense of safety." That is central banker language for: we may be cutting too fast.

The major bank forecasts diverge sharply. BNP Paribas expects a cut in March. Berenberg has pushed its call back to the April 30 meeting. Deutsche Bank's chief UK economist Sanjay Raja sticks with March and expects a final cut in June that would take Bank Rate to 3.25%. The spread between 4.50% (current) and 3.25% (Deutsche Bank's terminal rate) represents 125 basis points of additional easing — a significant headwind for Sterling over the next six months.

The Big Bank GBP/USD Forecasts — Goldman at 1.38, JPMorgan at 1.30–1.38

Goldman Sachs targets GBP/USD at 1.38 by year-end — a 2.3% rally from current levels that implies the political and macro headwinds eventually subside and the UK economy stabilizes. JPMorgan is more cautious, seeing a range of 1.30 to 1.38 with a break below 1.30 possible if economic recovery disappoints. The JPMorgan downside scenario — GBP/USD below 1.30 — is not priced by the market and would represent an 8-cent decline from Friday's close.

Rabobank's characterization of Sterling as one of the most exposed G10 currencies is the most actionable view for near-term positioning. The combination of a central bank that is still cutting, a government under severe political pressure, consumer confidence at -19, unemployment at a post-pandemic high of 5.2%, and now a geopolitical crisis that strengthens the dollar and raises UK energy import costs — this is not a currency you want to own heading into March.

USD/CAD Confirms the Dollar Trend — Oil at $82 Provides a Cross-Check

USD/CAD fell to 1.3647 on Friday, down 0.21%, as West Texas Intermediate crude climbed above $82 per barrel, bolstering the Canadian dollar. The pair has declined for three of the past four sessions, dropping from above 1.37 to current levels. The technical picture shows USD/CAD testing support after failing twice at 1.3727 resistance — the same price that set a double bottom last year and led to a rally above 1.4000. If support holds, a retest of 1.3727 is next; if it breaks, broader dollar weakness is confirmed.

The interplay between USD/CAD and GBP/USD matters because oil prices drive the Canadian dollar, and oil is now the most consequential macro variable in global markets following the Iran strikes. Rising crude supports CAD (pushing USD/CAD lower) but simultaneously hurts Sterling (pushing GBP/USD lower) because the UK is a net energy importer while Canada is a major exporter. This divergence — CAD strengthening and GBP weakening on the same catalyst — means GBP/CAD could see aggressive selling pressure in the weeks ahead. Next week's Canadian Q4 GDP data and U.S. PCE report will provide additional direction for the USD/CAD side of this equation.

The Week Ahead — PCE Tuesday, Canadian GDP Thursday, ISM and NFP Friday

The UK economic calendar is light — only a speech from BoE's David Ramsden. The real action is on the U.S. side: ISM Manufacturing and Services PMIs, multiple Fed speeches, Retail Sales, and the February non-farm payrolls report on Friday, March 6 (consensus: 60,000 jobs, 4.3% unemployment). Tuesday's U.S. PCE deflator — the Fed's preferred inflation gauge — is the marquee release. Any softer-than-expected reading would reinforce bets on policy easing and could briefly weaken the dollar, offering GBP/USD a respite.

Core PCE is expected to show continued disinflation, but after Friday's PPI shock at 3.6%, there is upside risk. PPI feeds into PCE with a lag, and the trade services component rising 2.5% suggests tariff-driven inflation is not yet fully captured in consumer-facing measures. A hot PCE would cement the "no cuts before summer" narrative and send GBP/USD decisively lower.

The new U.S. 10% blanket tariff on imports, which came into force earlier in the week, adds a layer of uncertainty. The British Chambers of Commerce noted the lower rate offers "some relief" compared to earlier proposals but still makes forward planning "extremely difficult" for exporters. The tariff drag on UK exports to the U.S. is a slow-burn negative for Sterling that will compound over quarters rather than days.

February's Currency Performance — GBP Was the Weakest G10 Currency Except Against the Yen

The monthly performance table tells a devastating story for Sterling. In February, GBP fell 2.48% against the U.S. dollar, 1.20% against the euro, 0.59% against the yen, 1.42% against the Canadian dollar, 1.13% against the New Zealand dollar, and 2.03% against the Swiss franc. The only major currency Sterling outperformed was — barely — the Japanese yen, and only because yen weakness was driven by carry trade dynamics rather than Japanese fundamentals.

The most striking figure: GBP fell 3.39% against the Australian dollar. AUD — the risk-on, commodity-linked currency that is supposed to suffer during geopolitical stress — outperformed Sterling by more than 3% in a month that included an active military escalation in the Middle East. That tells you everything about how the market views the UK's domestic situation. Sterling is not being sold because of external factors alone. It is being sold because the internal picture — 5.2% unemployment, -19 consumer confidence, a by-election wipeout, 4.4% services inflation, and an 80% chance of another rate cut — is genuinely deteriorating.

The Verdict — GBP/USD: Sell Rallies Toward 1.3530–1.3560, Target 1.3300, Bearish Bias

GBP/USD at 1.3469 is a sell on rallies toward 1.3530–1.3560, with a near-term downside target of 1.3300 and a risk case extending to 1.30 if the March BoE cut delivers a dovish surprise alongside continued geopolitical escalation.

The evidence is overwhelming. On the domestic front: Labour just lost a seat it held with 50%+ less than two years ago, consumer confidence has cratered to -19 (four points below expectations), unemployment is at 5.2% with youth joblessness at 16.4%, and the Bank of England is 80% likely to cut rates on March 19 while services inflation runs at 4.4% — above the Bank's own forecast. The BoE is cutting into sticky inflation because the economy is weakening, and that is the worst possible combination for a currency: rates go down while the reasons for cutting get worse.

On the external front: the dollar has a hot PPI print (core at 3.6%), an ascending triangle pattern in DXY that is coiled for an upside breakout, active military operations in Iran that will generate safe-haven demand on Monday's open, and a Fed that cannot cut because inflation is reaccelerating even as growth slows. The 56 basis points of easing priced by year-end is too dovish — the PPI says the Fed stays on hold through at least June, and the Iran conflict adds another reason for caution.

The technical structure confirms the fundamental thesis. GBP/USD is trapped in a falling wedge with resistance at 1.3568 holding firmly. The moving average cluster at 1.3500 is capping every bounce. The bullish structure (higher lows from 1.3035) is weaker than the equivalent pattern in EUR/USD, making cable the less attractive vehicle for dollar-bearish bets and the more attractive vehicle for dollar-bullish bets. A break below 1.3400–1.3434 opens 1.3360, and below that, 1.3300.

Goldman Sachs sees 1.38 by year-end. That may prove correct on a 10-month horizon if the UK stabilizes politically and the BoE finishes its cutting cycle. But JPMorgan's 1.30 downside scenario — contingent on economic disappointment — looks far more realistic for the March–April window. The by-election result is a political crisis. The confidence data is an economic crisis. The Iran strikes are a geopolitical crisis. And the BoE is about to cut into all three simultaneously.

Sell the rallies. Target 1.33. Keep stops above 1.3600 for risk management. If DXY breaks 97.94 on Monday's Iran-driven gap, GBP/USD 1.3300 could arrive within the first two weeks of March. The pound has no friends right now — not the data, not the politics, not the central bank, and not the global risk environment. Trade accordingly.

That's TradingNEWS