The pound continued to decline against the U.S. dollar, with GBP/USD trading around 1.3430, reflecting a decrease of nearly 2.8% from last week’s high of 1.3726. The reversal came after the Federal Reserve’s recent policy decision, which sparked a brief rally before sellers regained dominance. Market participants are currently considering a significant 70% likelihood of a U.S. government shutdown, which has negatively impacted risk appetite and introduced additional volatility for the currency pair. As the Dollar Index dipped to 97.95, Sterling struggled to maintain its upward momentum, underscoring the vulnerability of the recent recovery.
GBP/USD is maintaining its position slightly above the key support level of 1.3267–1.3280, which corresponds to the 78.6% retracement of the advance seen in August and coincides with the closing low of that month. A decline beneath this zone would reveal 1.3140–1.3144, a range coinciding with the 38.2% retracement of the annual range, the low from May 2023, and the 52-week moving average. If bearish pressure continues, the next significant support level is located around 1.3056–1.3080, marked by the 100% extension of the June decline.
On the upper side, resistance is identified initially at 1.3434–1.3469, whereas a more significant barrier persists around 1.3648–1.3650. A consistent breakout above that range would reinvigorate bullish momentum towards 1.3749 and possibly the 1.40 level. The gap between U.S. and UK monetary policy is widening. Reports indicates an 88% likelihood of an additional rate cut in October and a 65% chance of another reduction in December, even as inflation metrics reveal headline PCE at 2.7% and core PCE remaining stable at 2.9%.
In the interim, the Bank of England is anticipated to hold its policy rate steady at 4.0%, as Deputy Governor Dave Ramsden emphasizes the importance of sustaining a restrictive approach until inflation aligns with the target. This divergence provides medium-term support for Sterling while maintaining near-term momentum favoring the dollar, especially as shutdown concerns drive safe-haven flows.