GBP/USD Price Forecast - Pound Climbs to 1.3240 as Dollar Falls and UK Budget Strengthens Fiscal Confidence

GBP/USD Rebounds to 1.3240 as Dollar Weakens and UK Budget Lifts Sterling Momentum

The GBP/USD pair continues its upward trajectory, trading around 1.3240, after marking its seventh consecutive daily gain. The move reflects a convergence of dollar softness, a supportive UK fiscal framework, and shifting monetary expectations on both sides of the Atlantic. Investors are rebalancing positions ahead of December’s key central bank meetings as the pair tests its near-term resistance zone at 1.3265–1.3300, levels last seen in mid-September.

Dollar Loses Ground as Rate-Cut Bets Hit 87% for December

The U.S. Dollar (USD) remains under sustained pressure, with the Dollar Index (DXY) hovering around 99.66, down nearly 3.8% month-to-date, as traders price in a dramatic pivot in Fed policy. The CME FedWatch Tool shows an 87% probability of a 25-basis-point rate cut in December, up sharply from 31% last week. Market sentiment further intensified after reports that Kevin Hassett, known for his dovish stance, could replace Jerome Powell as Fed Chair. Treasury yields reacted accordingly — the 10-year yield dropped below 3.82%, while the 2-year slid toward 3.59%, marking its lowest point since June. The shift has accelerated capital outflows from dollar-denominated assets and boosted higher-beta currencies like sterling.

UK Budget Restores Fiscal Credibility, Fuels Sterling Confidence

Sterling’s resilience stems from the UK Autumn Budget, which delivered a £22 billion fiscal buffer and improved short-term financial optics. Chancellor Rachel Reeves emphasized growth-focused spending without spooking gilt markets, resulting in a 10-year gilt yield drop of 14 basis points to 3.77%. Despite downgraded GDP growth projections to 0.8% for 2026, investors welcomed the fiscal restraint that helped stabilize the pound after weeks of volatility. The combination of lower borrowing costs and reduced political risk has pushed institutional flows back into UK assets. The budget’s credibility element matters more than its size — traders see the return of macro stability as a green light for extending sterling longs.

Monetary Policy Divergence Widens Between BoE and Fed

Rate expectations now create a complex dynamic for GBP/USD (Cable). Markets assign a 70% probability that the Bank of England (BoE) will deliver its first rate cut in Q1 2026, but this is overshadowed by a far steeper easing cycle expected from the Fed. Governor Andrew Bailey’s remarks that “disinflation remains consistent with forecasts” opened the door for flexibility, yet UK inflation at 3.8% YoY keeps policy anchored. In contrast, U.S. core PCE fell to 2.4%, signaling a faster path toward target. The result: a widening relative yield advantage for the pound, which now leads speculative positioning for the first time since August.

Technical Picture: Support Holds Firm Above 1.3200

The GBP/USD chart reflects sustained bullish control. The pair remains above both its 50-day EMA (1.3147) and 200-day EMA (1.3191) — a rare technical alignment indicating structural strength. A short-term pinbar reversal candle from Wednesday near 1.3210 confirmed buyer defense at the 200-MA, while momentum oscillators remain supportive with RSI at 63, far from overbought extremes. Resistance lies at 1.3264, followed by 1.3300, with breakout potential toward 1.3325–1.3360. On the downside, initial support sits at 1.3180, followed by 1.3103, where aggressive dip-buying is likely. Daily trading volumes are light due to U.S. holidays, but order flow remains skewed toward sterling accumulation.

Macro Catalysts: Disinflation in the U.S. Meets UK Fragility

Macro divergences reinforce sterling’s medium-term advantage. The U.S. Chicago PMI fell to 44.6, marking its weakest reading since February, while durable goods orders dropped 5.3%, reflecting broad slowdown across manufacturing. Conversely, the UK’s retail volume index, although negative at –0.7% MoM, was less severe than anticipated, providing relative stability. Wage growth deceleration — with average earnings excluding bonuses rising 5.1% YoY, the slowest since 2022 — eases BoE pressure while keeping real income growth intact. These data collectively reduce the urgency for aggressive tightening, allowing sterling to consolidate without losing credibility.

Market Sentiment: Consolidation Before Breakout

Positioning data from the CFTC shows speculative long exposure to GBP futures up 17% week-on-week, while short exposure to USD has increased 22%, the sharpest build-up since May. Traders expect a temporary consolidation range between 1.3220 and 1.3270, but with a bullish breakout bias. If the Fed confirms easing on December 18, algorithmic models estimate GBP/USD could reach 1.3380–1.3440 by early Q1 2026. However, liquidity traps remain possible if U.S. macro data surprises on the upside, particularly with the ISM Manufacturing Index and Non-Farm Payrolls due next week.

Global Correlations and Cross-Market Influence

Cross-asset dynamics add further context. Sterling strength has spilled into EUR/GBP, which slipped to 0.8542, its lowest in three months, while the FTSE 100 gained 0.7%, supported by banking and energy stocks benefiting from a softer pound. Gold’s rally toward $4,200/oz reflects the broader devaluation of the dollar and signals that capital rotation is underway across risk assets. Meanwhile, crypto sentiment remains subdued, amplifying flows into traditional FX havens.

TradingNews.com Verdict

The GBP/USD (Cable) market closes the week with strong technical momentum, a supportive fiscal backdrop, and a shifting monetary landscape that favors sterling. The combination of a weak dollar, credible UK budget, and moderate BoE dovishness creates a bullish trifecta. With upside targets at 1.3300–1.3350, the near-term setup supports continuation toward 1.3400, provided support holds above 1.3200.

Verdict: BUY — Bullish bias toward 1.3400, with dip-buying favored between 1.3180–1.3210 as Fed easing cycle accelerates and UK fundamentals stabilize.

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