GBP/USD Price Forecast - Pound Falls to 1.3287 as Fed Cut Looms and UK Retail Surge Fails to Shift Bearish Trend

GBP/USD Under Pressure as U.S. Inflation Data Reinforces Fed Cut Bets While UK Retail Surprise Offers Temporary Relief

The GBP/USD pair hovered around 1.3287, its lowest level since mid-October, before recovering slightly on Friday after stronger-than-expected UK retail data briefly stabilized sentiment. Despite the rebound, the pair ended the week down 0.85%, highlighting how dollar strength and diverging rate paths continue to define direction. U.S. inflation remains the dominant driver, with September’s annual CPI rising to 3.0%, up from 2.9% in August, but still softer than forecasts. Core inflation eased marginally to 3.0%, maintaining pressure on the Federal Reserve to follow through with a widely expected 25-basis-point cut at the October meeting and another in December. Fed funds futures now price a 94.5% probability of a cut this month and a 92% chance for a second move before year-end, keeping the greenback relatively supported despite easing price growth.

UK Economic Data Surprises but Sterling Struggles to Break Higher

The British economy delivered rare positive data as UK retail sales volumes rose 0.5% in September, defying expectations of a 0.2% decline. The gain followed a 0.6% upward revision for August, marking the strongest back-to-back increase since 2022. Consumer spending resilience, especially in food and household goods, offered a temporary lifeline to the pound. However, broader economic signals remain subdued — the manufacturing PMI showed contraction, albeit at its slowest pace in a year, while services activity stagnated. S&P Global’s Chris Williamson noted that “September likely marked the low point for UK growth,” but the lack of consistent momentum suggests any sterling rebound could be short-lived. Structural inflation and sluggish productivity continue to constrain the Bank of England’s policy flexibility, leaving GBP/USD at the mercy of U.S. macro developments.

Federal Reserve Outlook: Policy Divergence Keeps Dollar Bid

The Federal Reserve’s upcoming meeting will be pivotal. Although no new forecasts are expected, attention will fall squarely on Chair Jerome Powell’s tone. With the Fed likely cutting rates to a 3.75–4.00% range, markets will dissect any hint of dovish language regarding inflation or labor softness. A potential end to quantitative tightening (QT) could soften the dollar marginally, but the broader bias remains bullish unless the Fed explicitly signals a deeper easing cycle. In parallel, GBP/USD remains constrained by the widening policy gap between the Fed’s gradual easing and the Bank of England’s prolonged pause, with UK rates unlikely to fall meaningfully before mid-2026.

UK Fiscal and Energy Concerns Add to Sterling Weakness

UK fiscal headwinds continue to undermine investor confidence. The government’s higher-than-expected borrowing needs, coupled with stagnant wage growth and elevated energy costs, weigh heavily on sterling. Oil prices have surged amid geopolitical tension, lifting import costs for the UK and worsening the current account deficit. The combination of expensive energy imports and slower growth has amplified the perception that the UK economy remains more vulnerable to external shocks than its U.S. counterpart. The resulting imbalance has deepened selling pressure in GBP/USD, with traders increasingly targeting 1.3150–1.3100 as the next support area should U.S. yields stabilize above 4%

Market Positioning and Technical Structure in GBP/USD

Technically, GBP/USD faces a decisive battle near 1.3300, with resistance aligned at 1.3365 (50-day moving average). Momentum remains weak, and RSI has failed to reclaim the 50 midline, signaling limited buying conviction. Below, support rests at 1.3200, followed by 1.3150 — a break beneath which could expose 1.3000, a psychologically critical zone tied to August’s lows. Conversely, a close above 1.3365 would open the path toward 1.3480, but that would require both softer U.S. data and renewed UK optimism — a combination unlikely in the near term given policy and growth divergence. The pair’s overall bias remains bearish, with market participants preferring to sell rallies until clearer signs of a sustained shift in Fed tone or stronger UK macro data emerge.

Investor Outlook: Policy Divergence Favors the Dollar

The interplay between moderating U.S. inflation and resilient growth keeps the dollar underpinned relative to peers. UK economic momentum, while stabilizing, remains fragile compared to the U.S. In this context, speculative flows continue to lean toward dollar strength as carry trade appeal remains intact. Unless the Bank of England signals a surprise hawkish stance or UK inflation rebounds sharply, the path of least resistance for GBP/USD remains lower. With the pair capped below 1.34, risk sentiment, Fed communication, and global energy volatility will continue to dictate short-term moves.

Verdict: HOLD with Bearish Bias — expect a near-term range between 1.3150–1.3400, with risk tilted toward another downside retest if the Fed’s rhetoric remains firm and the UK’s growth recovery stalls.

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