GBP/USD Price Forecast - Sterling to Pound Drops to 1.3343 as Strong US Data Boosts Dollar and BoE Warnings Cap Sterling

GBP/USD pressured as U.S. data lifts the dollar and Fed signals hawkish tone

GBP/USD trades at 1.3343, down 0.77%, marking its sharpest slide since early September as the greenback surged on the back of stronger-than-expected U.S. macro data. The U.S. GDP revision to 3.8% from 3.3% and weekly jobless claims easing to 218K versus forecasts of 235K added momentum to the dollar. Durable goods orders jumped 2.9% in August, reversing July’s slump, with non-defense capital goods rising 1.9%. These figures reinforced the view of a resilient U.S. economy despite aggressive Fed easing earlier this year.

Fed policy rift intensifies with Powell urging caution

While the Federal Reserve cut rates in September, Powell’s remarks signaled reluctance for deeper easing, stressing the risk of losing inflation control. Kansas City Fed President Schmid labeled the current policy stance as “slightly restrictive” and the right setting, warning inflation remains “too high” even as employment shows balance. The Fed’s dual mandate dilemma is clear: ease to protect jobs, but not enough to reignite inflation. Markets price in two more cuts this year, yet Powell’s caution limits aggressive dollar selling, keeping GBP/USD under pressure.

Bank of England constrained by UK labor fragility and fiscal outlook

Across the Atlantic, the Bank of England faces limited room to maneuver. Governor Bailey acknowledged inflation will cool into 2026 but warned the labor market is softening. Job creation is slowing, consumer savings remain elevated — almost double pre-pandemic averages — and Autumn budget discussions are expected to emphasize fiscal consolidation. BoE officials including Chief Economist Huw Pill remain cautious, signaling any easing will be gradual and data-dependent. That caution leaves sterling vulnerable as markets doubt the UK’s ability to match U.S. growth momentum.

Technical picture: GBP/USD loses trendline support, eyes 1.3200

Technically, GBP/USD broke below a rising trendline that had supported the summer rally. Immediate support is marked at 1.3333, a level now under test, while deeper support sits at 1.3200, the August swing low. The RSI at 41 reflects bearish momentum without yet being oversold, leaving scope for further downside. On the topside, resistance is capped at 1.3378, followed by the psychological 1.3500 barrier. A failure to reclaim these levels risks accelerating declines, while only a close above 1.3537 would stabilize momentum and shift focus toward 1.3592.

Market positioning shows crowd long sterling, contrarian risks deepen

Retail sentiment tilts long, with 59% of traders positioned bullish on GBP/USD. Historically, such crowding warns of further downside, as professional desks often fade retail positioning. This contrarian signal aligns with the technical breakdown and macro divergence in favor of the U.S. dollar. With the Dollar Index (DXY) at 98.41, holding above both its 50- and 200-day averages, dollar demand remains structurally supported.

Key event risks: U.S. PCE inflation and UK budget backdrop

Markets now turn to Friday’s release of the U.S. core PCE index, expected at 2.9% y/y, a figure that will be pivotal for the Fed’s next steps. A hotter reading would harden Powell’s cautious stance, potentially extending dollar strength and dragging GBP/USD toward 1.3200. In the UK, the fiscal backdrop remains fragile, with looming budget consolidation adding another headwind to sterling demand. Traders will also track remarks from BoE officials in coming weeks for clarity on easing pace.

At 1.3343, GBP/USD reflects a convergence of strong U.S. growth, cautious Fed rhetoric, and fragile UK fundamentals. With trendline support broken, bearish sentiment dominant, and retail traders crowding longs, the balance of risks skews lower. Near term, GBP/USD is a Sell on rallies, with downside targets at 1.3330 and 1.3200, unless PCE inflation cools sharply enough to weaken the dollar.

That's TradingNEWS