GBP/USD Price Forecast
Pound Sterling Drops to 1.3041 Amid Fiscal Concerns
The British Pound (GBP/USD) slid 0.7% to 1.3041 on Wednesday, reaching its lowest level since April 2025. This marks the third consecutive weekly decline for Sterling, with a two-week loss exceeding 2.4%, the sharpest since November 2024.
Fiscal Uncertainty and Diverging Central Bank Policies
Traders are reacting to growing fiscal uncertainty in the UK and a widening gap between the Bank of England (BoE) and the U.S. Federal Reserve policies. UK Chancellor Rachel Reeves warned of “difficult fiscal choices” in her upcoming Autumn Budget, hinting at potential tax increases to stabilize public finances.
“difficult fiscal choices” loom in her upcoming Autumn Budget
Reeves’s comments raised concerns over consumer spending and business investment, especially as UK GDP growth remains stagnant.
Stronger U.S. Data Supports Dollar Gains
Strengthening U.S. economic indicators pushed the Dollar Index (DXY) to a three-month high of 100.08. Key reports included better-than-expected ADP employment growth (+145K) and an ISM Services PMI reading of 52.4, boosting the dollar against major currencies.
Currency Performance and Market Impact
- The Pound was among the worst-performing G10 currencies on the day.
- It underperformed both the Euro (EUR/USD 1.148) and the Yen (USD/JPY 154.04).
Economic Outlook: Inflation and Growth Challenges
The BoE faces a complex environment: inflation remains stubbornly high at 3.8%, nearly double its target, while the UK economy shows signs of weakness and flirtation with recession. In contrast, the Fed sticks to a cautious, data-driven easing approach.
Summary: Sterling’s recent decline reflects fiscal uncertainty and diverging monetary policies, with UK economic challenges and strong U.S. data strengthening the dollar.