GBP/USD Price Forecast - Pound to Dollar Rises to 1.3190 as UK Budget Outlook Support Sterling

GBP/USD (British Pound – U.S. Dollar) Holds Firm Above 1.3190 as Dollar Weakens, U.K. Budget and Fed Outlook Drive Next Move

Sterling Consolidates Gains Above 1.3190 Amid Dollar Slide and Policy Shifts

GBP/USD trades at 1.3192, holding steady after three consecutive sessions of gains as both macro and technical drivers align to support the British pound’s rebound. The pair surged through the 1.3150 resistance earlier this week and is now consolidating above 1.3185, marking its highest weekly close since early October. The momentum comes as U.S. inflation, retail, and labor data all softened, forcing a reassessment of the Federal Reserve’s December rate cut probability, which has risen to 85%.

The Dollar Index (DXY) trades at 99.55, down 0.03%, its weakest level in nearly four months. This broad dollar retreat has fueled gains across major currencies, but sterling’s rise is particularly pronounced due to improved U.K. economic data and anticipation surrounding Chancellor Rachel Reeves’ Autumn Budget, due later today.

The Office for Budget Responsibility (OBR) is expected to downgrade growth forecasts for 2026 by up to £25–30 billion, but strong fiscal headroom — approximately £22 billion — gives Reeves space to balance spending without triggering a gilt selloff. The market interprets this as stabilizing for sterling assets, with GBP/USD traders viewing the fiscal adjustment as net positive for medium-term credibility.

U.S. Data Weakness Accelerates Fed Rate-Cut Bets

Dollar softness is the central theme driving GBP/USD higher. U.S. Retail Sales rose just 0.3%, while Producer Price Index (PPI) inflation eased to 2.6% YoY from 2.9%, confirming disinflation trends. The ADP employment report showed an average job loss of 13,500 in early November, the sharpest deterioration since mid-2023. With inflation moderating and employment cooling, markets now price in two potential Fed rate cuts by March 2026, weakening the greenback further.

The market’s dovish recalibration has driven U.S. Treasury yields lower, with the 10-year yield falling to 4.05%, its lowest since August. The decline has reduced demand for the dollar’s safe-haven appeal, allowing the pound to climb even in a low-growth backdrop. Traders note that unless the next U.S. Durable Goods Orders or Chicago PMI data reverses this trend, dollar weakness will persist into early December.

U.K. Fiscal Outlook and Autumn Budget Impact

In London, sterling traders are closely watching Chancellor Reeves’ Autumn Budget. Market leaks suggest the government will avoid immediate tax increases, focusing instead on capital investment and tightening spending on non-essential projects. The U.K. budget deficit is projected to widen modestly, but the avoidance of aggressive austerity reassures investors that growth support will continue.

Meanwhile, U.K. labor market data remains stable. Unemployment holds at 4.2%, while services PMI rose to 51.3, signaling mild expansion. The Bank of England (BoE) faces a dilemma — inflation cooled to 3.8% YoY, but wage growth remains sticky at 6.1%, preventing an outright dovish pivot. Nonetheless, futures markets price an 80% chance of a 25-basis-point rate cut in December, following the Fed’s expected move.

This macro alignment between the BoE and Fed is critical: synchronized easing cycles often neutralize one another, but since the Fed is perceived to be ahead of the curve, GBP/USD benefits as relative rate expectations shift in favor of the pound.

Technical Structure: Bulls Maintain Control Above 1.3150

From a technical standpoint, GBP/USD is in short-term recovery mode with clear bullish structure above 1.3150. The pair broke above its 15-day and 20-day moving averages (1.3141 and 1.3132), and daily candles now show sustained momentum. The Relative Strength Index (RSI) at 50.79 indicates mid-level momentum, while the 50-day EMA is turning neutral after months of downward slope.

Immediate resistance sits at 1.3230, the intraday barrier that, if broken, opens the door to 1.3300–1.3350. On the downside, 1.3150 remains the pivot zone, followed by 1.3100 — a critical threshold that, if breached, could end the rebound. Volatility readings have fallen to a one-month low, confirming reduced downside pressure and improved liquidity.

Analysts note that short-term traders have rotated into sterling longs, but institutional positioning remains cautious, with CFTC data showing hedge fund net shorts reduced by 14% over the last two weeks.

Market Sentiment: Pound Strength Built on Dollar Retreat, Not Domestic Optimism

The broader sentiment behind the GBP/USD rally is driven more by dollar weakness than inherent U.K. strength. U.S. policy expectations dominate currency flows this week, especially after speculation that President Trump may replace Fed Chair Jerome Powell with Kevin Hassett, a known monetary dove. The potential leadership shift reinforces expectations of lower rates through 2026.

However, risk reversals in the options market still point to lingering downside hedging for GBP. Implied volatility on one-week options stands at 8.3%, while 25-delta risk reversals favor USD calls over GBP, reflecting caution ahead of the U.K. budget. This suggests that while spot levels are stable above 1.3190, traders remain wary of sharp intraday reversals

U.K. Yield Dynamics and Fiscal Credibility

The U.K. gilt market has stabilized, with 10-year yields down to 3.89%, from 4.23% earlier this month, as investors welcome fiscal responsibility. The move contrasts with the 2022 Truss budget shock, which sent yields soaring and GBP/USD crashing below 1.10. Reeves’ focus on credibility and gradualism is calming markets, helping sterling detach from past volatility patterns.

At the same time, BoE quantitative tightening continues at a measured pace, with no sign of balance sheet acceleration. This ensures liquidity conditions stay stable even as the central bank signals a cautious pivot.

Short-Term Scenarios and Risk Factors for GBP/USD

For the next 48 hours, GBP/USD will likely oscillate between 1.3150 and 1.3230, awaiting confirmation from budget details and U.S. macro prints. A breakout above 1.3230 could drive a rally to 1.3300, then 1.3350, the latter representing a 3-month high. However, renewed dollar strength from stronger U.S. data could trigger a pullback toward 1.3120–1.3100.

Macro risks include the UK Autumn Budget outcome, U.S. Durable Goods Orders, and Chicago PMI readings later today. A dovish BoE statement post-budget could also weigh on GBP/USD if inflation and wage guidance soften.

Verdict: BUY / SHORT-TERM BULLISH

Data-driven sentiment favors the pound for now. GBP/USD remains constructive as long as it holds above 1.3150, with upside potential toward 1.3300–1.3350 in the short term. However, sustainability depends on the BoE’s tone following the budget and U.S. data confirming weaker momentum.

The pound’s rebound is technically and fundamentally justified — but the real test lies at 1.3230, where momentum either confirms a new uptrend or stalls into another consolidation phase

That's TradingNEWS