In light of President Donald Trump’s comments regarding the “unsustainable” nature of high tariffs on China, the U.S. Dollar experienced a broad strengthening, accompanied by an improvement in risk sentiment. The GBP/USD pair experienced a decline of 0.17%, currently trading near 1.34, while the Dollar Index increased to 98.42, bouncing back from previous losses. Trump’s more conciliatory tone alleviated trade tensions, restoring investor confidence in the Dollar and leading to short-term capital movements away from the Pound. The UK economy experienced a modest expansion of 0.1% in August 2025, only slightly mitigating the contraction observed in July. The deceleration in wage growth coupled with a slight increase in unemployment has intensified speculation that the Bank of England may implement a 25 basis point rate cut before the end of the year. According to data, there is now a 44% probability of a December rate cut, an increase from 28% just a week prior. This dovish perspective emerges as BoE MPC member Megan Greene cautioned that although the cutting cycle is not yet complete, the bank “should not cut rates every quarter,” indicating a prudent approach despite the diminishing growth momentum.
Across the Atlantic, the U.S. Federal Reserve maintains a stance of patience, as evidenced by the September CPI, which has cooled slightly to 3.1% year-over-year, yet remains above the 2% target. Federal Reserve officials, such as Christopher Waller and Neel Kashkari, have emphasized that inflation is still “too high,” despite the recent softening in labor data. The current market assessment indicates a mere 25% probability of a Fed rate cut occurring prior to March 2026, which further solidifies a robust Dollar stance in comparison to the Pound. The expanding interest rate differential between the Fed’s consistent approach and the BoE’s dovish orientation continues to exert significant downward pressure on GBP/USD. Market participants are progressively factoring in 53 basis points of anticipated rate reductions from the BoE by the conclusion of 2026, whereas the Fed continues to maintain its “higher-for-longer” stance. This divergence presents a structural challenge for Sterling. Historically, a comparable situation unfolded during the 2018–2019 trade war, where the Pound experienced a decline of nearly 8% as global investors prioritized the stability of the Dollar over risk-sensitive currencies. The current landscape reflects that trend, as energy expenses decline while financial uncertainties in the UK are on the rise.
Chancellor Rachel Reeves has confirmed that the Autumn Budget will incorporate new tax measures aimed at stabilizing public finances, which will contribute to existing economic headwinds. Although immediate expenditures will bolster social programs, the anticipated fiscal tightening is projected to reduce GDP by 0.2% in the early part of 2026. The Pound is currently exposed as investors assess the declining fiscal flexibility in contrast to the Fed’s stronger position. It has been observed that the UK’s twin deficits — budget and current account — continue to rank among the most concerning in the G7, which constrains Sterling’s ability to recover, even in the event of a decline in inflation. From a technical perspective, GBP/USD is currently evaluating critical support levels around 1.3350–1.3400, which corresponds with the 50-day simple moving average. A decline beneath this level may initiate a shift towards 1.32, where the subsequent significant support is located. Resistance is positioned around 1.3550, with the subsequent level at 1.3680 — a breakout beyond this point may alter short-term momentum. Despite temporary recoveries, the overall framework of the pair continues to exhibit a bearish trend, as indicated by lower highs that point to a sustained downside inclination.
This week, the British Pound experienced a slight appreciation against the Australian Dollar, while it depreciated against the Swiss Franc and U.S. Dollar, indicating a trend of global risk aversion. Currency heatmaps indicate that GBP/EUR remains stable around 0.87, bolstered by the political stability in France following Prime Minister Sébastien Lecornu’s successful navigation of no-confidence votes, which has contributed to the stabilization of the Euro. The current relative balance positions GBP/USD as the clearest indicator of central bank divergence and prevailing global macro sentiment.