GBP/USD Price Sinks Under 1.35 as Dollar Strengthens, UK Fiscal Risks Escalate

GBP/USD Weakens to 1.3480 as Fed Cut Bolsters Dollar Recovery

The GBP/USD pair traded at 1.3482, down 0.52% on Friday, extending its slide below the 1.3500 threshold as the U.S. Dollar Index stabilized around 97.60. Despite the Federal Reserve’s 25 basis point rate cut mid-week, the greenback’s rebound reinforced its “King Dollar” status, pushing Sterling to its weakest levels in two weeks. Quad witching volatility added to the pressure, while traders braced for upcoming U.S. data including durable goods, GDP, and the Fed’s preferred inflation measure, Core PCE.

UK Retail Sales Beat Expectations but Sterling Struggles

August retail sales rose 0.5% MoM in the U.K., modestly above the 0.4% forecast, yet this positive print failed to lift the pound. July’s sales were revised lower, muting optimism. Markets remain preoccupied with Britain’s fiscal picture after public borrowing surged to £83.8 billion from April through August—overshooting expectations by £11.4 billion. Concerns about the rising debt burden kept Sterling under pressure, highlighting the disconnect between short-term consumer strength and long-term fiscal fragility.

Bank of England’s Pause Highlights Policy Dilemma

The Bank of England opted to hold rates steady in its recent meeting, a decision reflecting the difficulty of balancing still-high inflation with sluggish growth. With CPI readings stubborn above target and labor markets softening, the BoE is constrained. Sterling traders saw the decision as dovish in tone, especially as the Fed signaled it could act again if labor market weakness persists. The divergence in monetary policy stances—U.S. cautious but tightening bias intact, U.K. trapped between inflation and debt—has favored the dollar over the pound.

Technical Setup: Sterling Slips Below Key Moving Averages

On the charts, GBP/USD broke beneath its 30-SMA and 50-day SMAs clustered around 1.3477–1.3463, cementing short-term bearish bias. A daily close below 1.3470 opens the door to test the September 3 low at 1.3332. Momentum oscillators confirm this shift: RSI hovers near oversold at 31, while stochastic indicators point to extended downside risk. On the upside, only a decisive daily close above 1.3600 would reset bullish potential and allow a run toward the yearly high at 1.3788.

Dollar Support Reinforced by Fed Rhetoric and Legal Headlines

Fed speakers, including Minnesota Fed President Neel Kashkari, stressed readiness to hike again if inflation surprises, even as unemployment risks justify the recent cut. Chair Powell reiterated a “meeting-by-meeting” approach, curbing hopes for aggressive easing. Beyond policy, U.S. political headlines around a court ruling on Fed independence injected uncertainty, yet paradoxically boosted the dollar by underscoring institutional resilience. This kept the DXY anchored near 97.40–97.60, limiting any Sterling rebound attempts.

GBP Crosses Show Divergent Signals

Sterling’s weakness against the dollar spilled into other pairs. GBP/JPY finally breached the 200 level with momentum, but overbought RSI warns of a corrective pullback below 200. GBP/CAD reversed after seven straight days of gains, capped by a bearish engulfing candle at June highs, hinting at near-term topping. Meanwhile, GBP/AUD extended a 3% decline over 17 days, pointing toward support at 2.032 and 2.0149, where a break could deepen the bearish structure. Across majors, the pound remains pressured by global central bank divergence and domestic fiscal unease.

Forward Outlook: GBP/USD Faces Tests at 1.3330 and 1.3600

With GBP/USD locked between key supports at 1.3470 and deeper levels near 1.3332, traders must weigh fiscal stress in the U.K. against the Fed’s steady hand. Upside targets at 1.3600–1.3788 look distant without a fundamental shift. Given fiscal overshoot, dovish BoE posture, and ongoing dollar resilience, the bias remains bearish in the short term. A sustained failure to reclaim 1.3500 risks accelerating downside momentum toward 1.3330, while only a close above 1.3600 could alter sentiment.

That's TradingNEWS