The GBP/USD pair is currently positioned at approximately 1.3435, making efforts to establish stability following a decline to 1.3424 on Thursday. The rejection at 1.3500 halted a four-day recovery and pushed sterling back into its consolidation range between 1.3400 and 1.3500. The recent decline of the U.S. Dollar Index to a four-month low of 97.90 has provided some relief for cable; however, the overall outlook continues to be precarious, heavily influenced by political dynamics and central bank policies.
The U.S. government shutdown has resulted in the suspension of the release of official economic data, notably the essential Nonfarm Payrolls report and weekly jobless claims. Investors currently lack a definitive perspective on the labor market. Private indicators provide a constrained perspective: Challenger job cuts decreased from 85,979 in August to 54,064 in September; however, hiring plans fell to their lowest level since 2009. This indicates an economy that continues to cool, even in light of rate cuts. In the absence of official confirmation, market participants are exercising caution, resulting in GBP/USD being confined within a tight range.
Current market expectations indicate a 97% likelihood of a 25 basis points reduction by the Federal Reserve during the October meeting, resulting in a federal funds rate adjustment to a range of 3.75%–4.00%. Anticipations for an additional decrease in December stand at 91%, with March and April also being considered for further easing. The repricing maintains a ceiling on the U.S. dollar, and with the DXY remaining below 98.00, sterling successfully holds above 1.3430. However, the absence of economic validation renders GBP/USD susceptible to fluctuations should there be a sudden change in policy expectations.
The current session reveals that Sterling has limited domestic drivers. The Bank of England has maintained interest rates at 5.25%, indicating a prudent approach amid stagnating growth. The UK service-sector data indicated a modest expansion, further supporting the notion of an economy facing challenges in achieving momentum. In the absence of new UK data releases, the pound is influenced by dollar flows. The absence of domestic momentum positions external shocks—such as U.S. politics, sanctions, or Fed policy—as the critical determinants for GBP/USD.