GBP/USD remained around 1.3120, showing a decline in momentum after it was unable to maintain its position above the 1.3170–1.3180 range earlier in the session. The pair’s short-term trajectory is limited by declining UK employment data, which has strengthened expectations that the Bank of England may consider rate cuts earlier than previously thought. The UK unemployment rate increased to 5.0% in the three months ending in September, surpassing predictions of 4.9%. Additionally, total employment fell by 22,000, indicating a cooling labor market that is now lagging behind the pace of post-pandemic recovery. Meanwhile, average weekly earnings growth decelerated significantly to 4.8% YoY, falling short of the anticipated 5.1%, thereby intensifying the pressure on policymakers to shift from a tightening stance to one of stimulus. The subdued employment landscape promptly resulted in decreased gilt yields, as 10-year UK bonds dropped by almost 9 basis points to 4.04%, thereby narrowing the spread against U.S. Treasuries and curbing foreign capital inflows into sterling. The market currently reflects an implied probability of approximately 60% for a BoE rate cut by February 2026, based on futures pricing. This marks a significant shift from the 25% probability observed merely two weeks prior.
The U.S. Dollar Index experienced a slight recovery to 99.70 after the Senate approved a deal to conclude the extended government shutdown; however, it continues to face pressure from disappointing domestic data. The University of Michigan consumer sentiment index has decreased to 50.3, marking the lowest point since June 2022, indicating that household confidence continues to be significantly low. In conjunction with decreasing Treasury yields — the 2-year note at 4.45% and the 10-year close to 4.18% — market participants are currently factoring in a 60% probability of a Federal Reserve rate cut in December, as per reports. The dovish shift has diminished the defensive attractiveness of the USD, which has, in turn, partially mitigated the domestic weaknesses of the sterling. Nonetheless, the upside potential for GBP/USD continues to be limited. The pair’s consistent inability to surpass 1.3175 highlights the persistent structural resistance around the 200-day EMA, which continues to hinder sustained upward movements. The 50-day EMA is positioned at approximately 1.3095, serving as intraday support. Meanwhile, the RSI reading of 46 indicates a neutral momentum, with downside risks prevailing if the pair settles below 1.3070.
Investor focus is turning to the UK’s forthcoming autumn budget, which could feature tax increases and specific spending reductions to tackle growing deficits. The UK public sector borrowing requirement has increased to £18.7 billion in the last quarter, reflecting a 12% rise compared to the same period last year. Fiscal tightening may exacerbate the slowdown already evident in the consumer and housing sectors, as retail sales remain stagnant and mortgage approvals have fallen below 45,000, marking their lowest point since early 2024. There are concerns in the markets that the dual approach of fiscal restraint alongside monetary easing may confine the UK economy to a shallow recession, a scenario that typically does not bolster currency strength. This structural backdrop clarifies the challenges sterling faces in achieving higher levels, despite the weakening of the U.S. dollar. Domestic growth forecasts have been revised down to 0.3% for 2026, while headline inflation has decreased to 2.9%, nearing the BoE’s target but highlighting the deflation risk that could warrant early easing. From a technical perspective, GBP/USD is currently trading within a range of 1.3065 to 1.3230, reflecting the short-term price compression observed on the 4-hour chart. Immediate support is positioned at 1.3075, with the subsequent level at 1.3010, corresponding to the lows observed in late October. A decline beneath 1.3010 may pave the way for a move toward 1.2940, which corresponds to the 61.8% Fibonacci retracement level of the October rally.
On the upside, resistance remains solid around 1.3175, coinciding with the 200-EMA and previous swing highs, followed by levels at 1.3245 and 1.3320, which would only be reached if U.S. inflation data substantiates a more dovish stance from the Fed. Momentum indicators present a mixed picture: the MACD indicates a flattening convergence, whereas Bollinger Bands have contracted to their tightest levels since mid-September, suggesting a possible increase in volatility in anticipation of significant data releases. Institutional traders are exhibiting caution — data indicates that net speculative long positions in GBP have decreased to +7,400 contracts, a decline from +16,200 two weeks prior, underscoring a diminishing confidence in the recent rebound of the sterling. The ongoing tug-of-war between the Federal Reserve and the Bank of England’s outlooks is now shaping the midterm trajectory of GBP/USD. Fed Chair Jerome Powell’s recent remarks indicated that the U.S. economy is “resilient but moderating,” which suggests a preparedness to lower rates should inflation persist in its decline. In contrast, BoE Governor Andrew Bailey’s latest statements underscored “lingering domestic price pressures” while suggesting that the tightening cycle may have reached its zenith. Should the Fed take the initiative, the diminishing policy differential may drive GBP/USD to approximately 1.33. Conversely, if the BoE responds proactively, the pair could swiftly drop beneath 1.30. U.S. macro indicators align with a bearish outlook for the USD in the medium term, highlighted by core PCE inflation at 2.6% and a slowdown in nonfarm payroll growth to 138,000. However, short-term volatility continues to be sensitive to data releases. The recent resilience of the pair can be attributed primarily to a temporary risk appetite associated with the conclusion of the U.S. government shutdown, rather than any inherent strength in sterling. Investor positioning indicates a preference for caution over confidence.
Asset managers are decreasing their exposure to both GBP and USD, opting instead for higher-yield currencies such as AUD and CAD, in pursuit of carry trade opportunities as global volatility shows signs of stabilization. Currently, corporate hedging activities are showing a preference for the dollar — U.K. importers are securing forward contracts close to 1.31 in light of budget uncertainties, which is constraining spot demand for sterling. The implied volatility for the pair over one-month tenors is approximately 8.1%, which is notably higher than the three-month average of 6.5%. This suggests that traders are anticipating significant fluctuations in response to forthcoming macroeconomic events, including CPI data and fiscal announcements. The GBP/USD setup continues to exhibit fragility and is currently confined within a range. In light of a weak dollar environment, the ongoing structural challenges posed by the UK’s decelerating labor market, increasing unemployment, and fiscal constraints overshadow any short-term positive outlook. The technical pattern of the pair indicates a preference for a downward trend unless it achieves a decisive close above 1.3180. Should the price fall below 1.3070, we can expect a significant shift in momentum to the downside, potentially leading to a swift move toward 1.2950. Considering the current data landscape — dovish BoE sentiment, fragile U.K. growth, and modest U.S. recovery — the prevailing position is to Hold, with a short-term Bearish inclination. A continued upward trend necessitates a change in policy from the Fed or more robust wage data from the UK, neither of which is currently apparent. Until then, the GBP/USD pair is caught in a balance of optimism and prudence, with traders acknowledging 1.30 as the threshold distinguishing strength from potential downturn.