The GBP/USD is experiencing significant selling pressure, currently trading around 1.3280 after a brief dip to 1.3247, which is its lowest point since August. The pair has decreased over 3.4% from September’s high of 1.3725, continuing a two-week downward trend as market participants reevaluate the UK’s delicate fiscal situation and forthcoming monetary policy decisions in both regions. Market sentiment toward Sterling has significantly worsened after the Office for Budget Responsibility’s alert regarding a £20 billion shortfall in government finances, a gap that may expand to £35 billion based on current productivity and growth projections. The OBR’s findings raise concerns that Chancellor Rachel Reeves could implement tax increases in the November Budget to stabilize public accounts. This action may restrict household expenditure and consumer demand, posing a risk to the UK’s already slow recovery.
The UK economy continues to exhibit structural weaknesses — GDP growth is stagnating around 0.2% quarter-on-quarter, productivity is still falling behind, and while inflation is easing, it highlights a delicate situation. The British Retail Consortium’s data indicated a decline in food prices and a slowdown in inflation to 1.8%, instilling confidence in markets that the Bank of England might shift towards easing sooner than anticipated. Market participants currently estimate a 68% likelihood of a 25-basis-point rate cut in December, marking a significant change from previous anticipations of an extended pause. The Federal Reserve is anticipated to declare its second 25-bps rate cut of 2025, adjusting the target range to 3.75%–4.00%. However, the market’s attention is squarely on Chair Jerome Powell’s tone concerning upcoming policy. A dovish statement indicating potential cuts before year-end might offer some support for the Pound, whereas a measured or hawkish approach could lead to additional declines toward 1.3140 or below. The U.S. Dollar Index remains stable around 98.70, bolstered by safe-haven demand in the face of global uncertainty and the ongoing Asia visit by the Trump administration, which has resulted in a U.S.–Japan minerals alliance agreement focused on securing rare earth supply chains.
The Fed’s decision arrives amid a backdrop of weakening U.S. macro data: Conference Board consumer confidence has decreased to 94.1, ADP private payrolls have declined by 36,000, and housing data indicates that prices are slowing for the seventh consecutive month. Despite these signals, the Dollar continues to show strength, indicating investors’ inclination towards liquidity and yield in the face of increased volatility in Europe and Asia. The forthcoming UK Autumn Budget is poised to be a significant risk factor for Sterling. As the implied volatility on GBP/USD options reaches a three-month peak, market participants are gearing up for more pronounced fluctuations amid growing fiscal uncertainties. If Reeves confirms new spending commitments without clear funding clarity, markets might view the plan as fiscally expansionary, reigniting concerns reminiscent of the 2022 mini-budget crisis that led to a significant collapse of Sterling. Market participants are closely observing the communications from the Bank of England, as Governor Andrew Bailey is anticipated to highlight the importance of data dependency.
Current market pricing suggests a total easing of 50 basis points by mid-2026, although fiscal stress could potentially hasten that timeline. For Sterling, this blend of monetary and fiscal instability offers scant hope in the short term, particularly as the Dollar persists in attracting risk-averse inflows. From a technical perspective, GBP/USD is currently forming a double-top pattern, with the neckline situated around 1.3140, which has emerged as a significant inflection point. The pair is positioned beneath the Supertrend indicator, indicating a persistent bearish sentiment. Resistance is noted at 1.3340, 1.3400, and 1.3520, whereas support levels are found at 1.3240, 1.3180, and 1.3140. A decisive close below 1.3140 may lead to further declines toward 1.3000, whereas a breakout above 1.3400 would counteract the current downward trend. Momentum indicators support this bearish structure: the RSI stays in the mid-40s, indicating no bullish divergence, while the Percentage Price Oscillator continues to be in negative territory. Volume data from interbank flows indicate persistent selling whenever GBP/USD tries to rise above 1.3340, highlighting significant resistance from institutional sellers.