GBP/USD Price Forecast: Weakens below 1.3350, maintains downside bias below 100-day SMA
- GBP/USD declines to near 1.3320 in Thursday’s early European session.
- The pair keeps a bearish vibe below the 100-day SMA; further consolidation cannot be ruled out amid neutral RSI momentum.
- The first downside target to watch is 1.3290; the immediate resistance level is located at 1.3385.
The GBP/USD pair trades in negative territory around 1.3320 during the early European trading hours on Thursday. The British Pound (GBP) weakens against the US Dollar (USD) following the UK Budget. The US September Personal Consumption Expenditures (PCE) inflation report will be the highlight later on Thursday.
The United Kingdom (UK) set out a target date for defense spending to rise to 3% of Gross Domestic Product (GDP), as the Finance Minister John Healey announced billions in aid for Ukraine in a “clear message to Moscow.” Healey on Wednesday set a target date of 2030 for the 3% figure while reaffirming its NATO commitment to reach 3.5% by 2035.
The Federal Open Market Committee (FOMC) voted 10-2 to leave its benchmark federal funds rate unchanged in a range of 3.75% to 4% at its October policy meeting on Wednesday. Federal Reserve (Fed) officials said they hoped incoming data would help inform their next decision.
GBP and gilts watch UK budget for signals on fiscal squeeze and issuance path
Strategists at Brown Brothers Harriman argue that "GBP and gilts will take their cue from today’s UK budget (12:30pm London, 8:30am New York)," with market attention firmly on "whether the government preserves the planned fiscal tightening and keeps gilt issuance in check." They note that, in March, the OBR projected the "cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, to improve from a 0.3% of GDP deficit in 2026/27 to a 0.3% surplus in 2027/28, implying a fiscal drag of 0.6% of GDP." On the supply side, BBH highlight that "analysts expect 2026/27 total gilt sales of £249.6bn, up £3.4bn from April’s plan, but £2.5bn below March’s original figure."
In their view, "maintaining or increasing the fiscal squeeze should support gilts by easing inflation pressure and tempering BOE hike expectations." However, for the Pound, they caution that "stronger fiscal credibility would compete with lower rate support and limit upside." By contrast, BBH warn that "fiscal slippage and heavier gilt issuance can drive gilt yields up and GBP down."
Warsh underscores unwavering 2% inflation goal, keeping Dollar bulls engaged
Warsh’s press conference tone is firmly hawkish, with the FXS Speechtracker score at 7/10, in line with the established baseline and reinforcing a consistent anti-inflation stance. The emphasis that “ensuring price stability is not about a fixed date on a calendar” and the pledge of “no ifs and or buts, we will deliver price stability” signal a data-dependent but resolute commitment to the 2% PCE target, backed by “new monetary medicine” and recent removal of accommodation. Repeated references to inflation expectations “going the right way,” widening credit spreads, and rates starting to bite in technology and CAPEX suggest confidence that tighter policy is working, while leaving the door open to further restraint if needed.
The FXS Fed Sentiment Index jumped by +14.39 points to 141.89, firmly in hawkish territory and well above the neutral 100 threshold, aligning with the unchanged 7/10 FXS Speechtracker score. This combination of a high index level and steady tone indicates that markets should continue to price a strong anti-inflation reaction function, a supportive backdrop for the Dollar against currencies where central banks are perceived as less resolute on price stability.
Technical Analysis: Negative outlook of GBP/USD remains intact under the 100-day SMA
In the daily chart, GBP/USD keeps a mildly bearish near-term bias as spot holds below the 100-day simple moving average (SMA). Price is trading above the 20-day Bollinger middle band, but the proximity of the upper band together with a neutral Relative Strength Index (RSI) near 49 suggests the pair is consolidating under broader topside supply rather than initiating a fresh bullish leg.
On the downside, immediate support level is seen at the Bollinger middle band around 1.3290, followed by the October 15 low of 1.3184. Further south, the next contention level is located at the lower limit of Bollinger band near 1.3165.
On the topside, initial resistance level emerges at the 100-day SMA at 1.3385, en route to the upper boundary of Bollinger band near 1.3420, where selling pressure could re-emerge. A decisive break above this level could pave the way to the July 15 high of 1.3558.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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