The GBP/USD is experiencing significant downward momentum, currently trading around 1.3050 after a decline from 1.3215 earlier this week. The pair has declined for four straight sessions, influenced by hawkish Federal Reserve minutes, disappointing U.K. inflation data, and increasing speculation that the Bank of England may lower rates as soon as December. The current situation represents a significant point for Sterling, with price action lingering at critical support around the 1.3080–1.3050 range, a level that has been consistently tested since March 2024. The GBP/USD correction commenced following the Fed minutes, which indicated that a majority of officials now support maintaining a restrictive policy for an extended period. Consequently, the odds of a rate cut in December have dropped to 31%, a decrease from 46% the previous week. The repricing elevated the U.S. Dollar Index beyond 100.00, marking its peak in five months, as Treasury yields increased, enhancing the dollar’s carry advantage. The outcome has led to a significant shift in Sterling’s recent trajectory, as traders have scaled back their bullish positions in anticipation of important macroeconomic events. According to data, the headline CPI experienced a decline to 3.6% year-over-year in October, a decrease from 3.8% in September. Additionally, core CPI fell to 3.4%, marking the lowest level since March. The Retail Price Index decreased to 4.3% from 4.5%, indicating a widespread disinflation trend in goods and services. Markets swiftly adjusted to a 25-basis-point BoE rate cut, with analysts from Deutsche Bank and UOB now anticipating the benchmark rate to decrease to 4.00% by December. The recent soft inflation reading, along with sluggish GDP growth and a cooling labor market, has strengthened the perspective that the BoE’s tightening cycle has reached its peak.
Traders currently assign a 74% probability to a cut at the next meeting, marking a significant shift from earlier in the quarter when expectations were for policy to remain unchanged through Q1 2026. The Bank of England’s dovish approach stands in stark contrast to the Federal Reserve’s position, amplifying the downward pressure on the pound. The gap between the two central banks’ perspectives has expanded the interest rate differential by almost 70 basis points in favor of the dollar, marking the most significant increase since mid-2023. The minutes from the Federal Reserve released on Tuesday reaffirmed the apprehension among policymakers that premature easing could potentially trigger a resurgence of inflation. Chair Jerome Powell and other FOMC members emphasized the importance of sustaining a restrictive policy until “clear disinflationary momentum” is realized. Reports indicates a mere 30% probability of a rate cut in December, prompting traders to pivot significantly back to the dollar, which has resulted in GBP/USD falling beneath the crucial 1.3080 level. Additional indicators of U.S. economic strength were reflected in regional data: Kansas Fed manufacturing activity increased to 18 from 15, and Existing Home Sales rose to 4.10 million, surpassing the consensus of 4.08 million. The sequence of favorable reports reinforced the argument for the Fed’s prolonged pause, enhancing the dollar’s yield advantage against key currency pairs, notably GBP/USD. The technical structure of the GBP/USD pair has significantly weakened. The price has declined beneath the 50-day and 200-day exponential moving averages, indicating a persistent bearish trend. The converging trend of the two EMAs indicates a forthcoming death cross, a traditional indicator of increased downward momentum.
The pair has also fallen below the 38.2% Fibonacci retracement level of its September-to-November rally at 1.3156, indicating a structural shift. Current support is positioned at 1.3050, with the subsequent level at 1.2955, which corresponds to the 50% Fibonacci retracement. A conclusive daily close beneath 1.3010 would pave the way toward 1.2895, a level aligned with the March 2024 high and a significant psychological barrier. Indicators reinforce this perspective. The RSI is positioned around 40, indicating limited recovery potential, whereas the MACD histograms continue to show negative values, reinforcing ongoing selling pressure. On the weekly chart, the range of 1.3080–1.3050 corresponds with the 100% extension of the decline from yearly highs, a zone that has historically prompted short-term rebounds. Nonetheless, a close above the 1.3140–1.3220 range is necessary for Sterling to unlock further upside potential. Sterling’s susceptibility encompasses more than just monetary policy. Political and fiscal uncertainty are once again surfacing as significant risk factors. The forthcoming Autumn Budget from Chancellor Rachel Reeves, set for November 26, may prolong the income tax threshold freeze, limiting disposable income and possibly triggering renewed market volatility in U.K. gilts. Investor confidence appears to be tenuous following lackluster GDP growth of +0.2% QoQ and indications of stagnation in private investment. The combination of a fiscal deficit approaching 4.9% of GDP, alongside a policy mix of easing and elevated public spending, poses a risk of exacerbating the pound’s structural imbalance relative to the dollar.
The impending Non-Farm Payrolls report, coupled with the recent federal shutdown, has increased volatility in the market. Forecasts indicate an increase of +55,000 jobs, building on the +22,000 recorded in the prior month. Any surprise above that range would strengthen the Fed’s hawkish stance and hasten the next decline in GBP/USD. In the past, a 50,000-job increase in Non-Farm Payrolls has typically resulted in a 0.5–0.6% rise in the U.S. Dollar Index. This suggests a potential movement in GBP/USD towards 1.2950 within the same trading session. Market participants are increasingly taking short positions, as indicated by data reflecting a net –35,000 GBP contracts, which represents a 14% increase week-on-week. Market sentiment and positioning indicate a pronounced bearish bias. Institutional sentiment remains supportive of the dollar. Hedge funds and asset managers have raised their USD long exposure by $2.4 billion since mid-November. Meanwhile, retail positioning on GBP/USD is heavily tilted, with 63% net-long, indicating that retail traders are attempting to bottom-fish—a signal that frequently foreshadows further declines. The implied volatility for one-week GBP/USD options surged to 9.3%, marking its peak since August. This increase indicates anticipations of significant fluctuations surrounding the NFP release and the Bank of England’s policy meeting in December.
A weekly close beneath 1.3080 would validate a continuation of the downtrend from 1.3800, with the subsequent downside target positioned around 1.2745, aligning with the 61.8% retracement of the annual range. Wider Economic Landscape: Strength of the Dollar Compared to Weakness of the Sterling. The macro divergence is now evident. The U.S. economy is demonstrating robust growth, expanding at an annualized rate of 2.1% in Q3, significantly surpassing the U.K.’s modest 0.4% annualized rate. Wage growth in the U.S. is currently at 3.8% year-over-year, whereas earnings in the U.K., excluding bonuses, have decreased to below 6.0%, marking their slowest rate in 18 months. This yield and growth differential solidifies the supremacy of the dollar. The 10-year U.S. Treasury yield is currently at 4.12%, whereas the 10-year U.K. gilt yield has decreased to 3.74%. This situation is exacerbating real rate divergence and diminishing the appeal of Sterling for those investors seeking yield. If GBP/USD maintains a position above 1.3050 and bounces back through 1.3155, short-covering may propel it to 1.3220, although sellers are anticipated to strongly protect that level. A decisive move below 1.3010 could lead to increased losses targeting 1.2895, and possibly 1.2745, where long-term Fibonacci levels and structural supports align. Volume profiles indicate significant institutional sell orders clustered between 1.3140–1.3220, suggesting that any upward movement will probably encounter substantial resistance prior to a potential trend reversal. The GBP/USD continues to exhibit a structurally bearish trend, with macroeconomic, technical, and sentiment indicators converging negatively for Sterling. The interplay of expectations for a BoE rate cut, disinflation in the U.K., and a hawkish stance from the Fed maintains a prevailing downside risk. A decisive break below 1.3010 would create potential for a move toward 1.2890, whereas any rebound toward 1.3155 should be interpreted as a corrective phase within the prevailing downtrend.