GBP/USD Price Forecast - Pound Breaks Higher to 1.3450 as UK Data Drive GBP/USD Rally

GBP/USD Extends Rally Toward 1.3500 as Dollar Weakens and UK Data Surprises to the Upside

The British pound (GBP/USD) advanced sharply this week, trading near 1.3440–1.3460, its highest level in more than two months, supported by a combination of softer U.S. dollar dynamics and a modest improvement in UK macroeconomic indicators. The recovery followed the currency’s earlier dip to 1.3245, marking a rebound of nearly 200 pips within days as traders priced in a weakening dollar amid rising expectations for Federal Reserve rate cuts. The move underscores how shifts in U.S. monetary policy continue to dominate short-term direction for Cable, even as domestic fundamentals in the UK show fragile growth. The broader market narrative is anchored in a weakening dollar index (DXY) that slid to 98.60, reflecting mounting investor conviction that the Fed will reduce rates twice before year-end.

UK Economy Shows Fragile Growth as GDP and Output Data Offer a Mixed Picture

Economic data from the United Kingdom offered cautious optimism. According to the Office for National Statistics, UK GDP expanded 0.1% in August, aligning with consensus forecasts but offset by a downward revision in July’s reading to –0.1%. Industrial production rose 0.4%, reversing the prior month’s decline, while manufacturing output jumped 0.7%, outperforming expectations of 0.2%. However, not all figures were positive — construction output fell 0.3%, and the goods trade deficit widened to £21.2 billion, reflecting ongoing import dependency. Despite these imbalances, the data reaffirmed the economy’s ability to maintain slight forward momentum amid elevated rates. Economists view this stability as a temporary cushion for the pound, particularly as the Bank of England faces pressure to pivot toward a looser stance in the coming quarters.

Labor Market Softens, Reinforcing BoE Dovish Bias

The UK labor market continued to weaken, with the unemployment rate edging up to 4.8% and jobless claims climbing 25,800 in September. Average earnings growth slowed to 4.7%, the weakest pace since early 2022, while total pay including bonuses grew 5.0%. The slowdown in wage inflation gives the Bank of England (BoE) room to ease policy without stoking further price pressure. Markets are now pricing in an 80% probability of a 25-basis-point cut by December, followed by another in February 2026. This dovish expectation has capped sterling’s upside despite short-term optimism. Still, as long as inflation continues to cool and consumer spending remains muted, the central bank’s bias will lean toward easing.

Fed Policy and Political Stalemate Weigh on the U.S. Dollar (DXY)

Across the Atlantic, the U.S. dollar remains under significant pressure, amplifying gains in the GBP/USD pair. The ongoing U.S. government shutdown — now stretching into its third week — has compounded investor unease over fiscal stability. Meanwhile, the CME FedWatch tool shows a 96.7% probability of a 25-basis-point Fed rate cut in October, with another move likely in December. This dovish trajectory has sent the Dollar Index (DXY) tumbling toward 98.58, its lowest in a week, as yields on U.S. Treasuries softened. Renewed U.S.-China trade tensions, including Washington’s proposed technology export restrictions and Beijing’s reciprocal tariff threats, have further dampened global demand for the dollar. As risk appetite cautiously returns to markets, higher-yielding and growth-sensitive currencies like the pound have benefited.

GBP/USD Technical Momentum: Bullish Above 1.3400 With Scope Toward 1.3550

Technically, GBP/USD has broken decisively above its descending trendline, signaling a shift in market sentiment. The pair trades near 1.3435, comfortably above its 20-day EMA at 1.3410 and 50-day EMA at 1.3376, both of which have now turned upward. The 200-day EMA, located around 1.3480, serves as the next critical resistance zone. If bulls secure a daily close above this threshold, the next upside targets are 1.3550 and 1.3600, which correspond to the August swing highs. The Relative Strength Index (RSI) stands at 68, nearing overbought territory, suggesting a possible short-term pause or minor retracement toward 1.3375–1.3345 before any further extension higher. Still, the ascending structure of higher highs and higher lows confirms an established bullish bias. As long as the pair maintains support above 1.3410, momentum favors continued appreciation toward 1.3500–1.3550.

Macro and Geopolitical Drivers Favor the Pound in the Short Term

The macro backdrop continues to lean in favor of the pound. The persistence of dovish Fed pricing, combined with improving risk sentiment in global equities, has created an environment conducive to further GBP gains. Meanwhile, Europe’s relative political stability contrasts with mounting gridlock in Washington, further eroding the dollar’s appeal. Although trade tensions between the U.S. and China remain a structural risk, traders have increasingly shifted focus toward opportunities in undervalued currencies. This rotation has supported both EUR/USD and GBP/USD, with the latter benefiting more strongly from the market’s rebalancing away from the greenback.

Market Expectations and Upcoming Catalysts

Traders are closely watching comments from FOMC member Christopher Waller, whose scheduled speech later today could offer new clues about the Fed’s tolerance for inflation risks. Additionally, the Philadelphia Fed Manufacturing Index will provide insight into industrial momentum heading into Q4. A softer tone from Waller or weaker U.S. manufacturing data could push the DXY below 98.20, accelerating the next leg higher in GBP/USD. Conversely, any hawkish remarks may cap gains near current resistance levels. In the UK, attention turns to upcoming retail sales and inflation data, both of which will determine whether the BoE can justify a rate cut before year-end.

Technical and Sentiment Overview: GBP/USD Eyes Breakout Extension Toward 1.3600

Sentiment indicators show a notable shift toward bullish positioning. According to aggregated futures data, speculative long positions in GBP have increased by 12% week-over-week, reaching the highest level since March. On the technical front, GBP/USD continues to hold above its ascending channel support, confirming the integrity of the short-term uptrend. The next significant breakout zone sits between 1.3488 and 1.3529, where sustained buying could open a clear path toward 1.3600. If momentum stalls, corrective pullbacks are expected to remain limited above 1.3340, a zone reinforced by the 50-day moving average. Volatility is likely to intensify around these levels as traders digest U.S. political developments and fresh macro releases.

Outlook: GBP/USD (Cable) Retains Bullish Bias, Targeting 1.3550 in the Near Term

The balance of forces currently favors continued strength in the pound. With the U.S. dollar’s dovish repricing, UK GDP resilience, and a neutral-to-dovish BoE outlook, the path of least resistance remains upward. Unless U.S. macro surprises shift sentiment abruptly, the GBP/USD pair is well-positioned to test the 1.3500–1.3550 range over the coming sessions. Short-term traders remain focused on maintaining positions above 1.3400, where trendline and EMA confluence support the bullish narrative. Based on current data, the market tone is bullish, suggesting a continuation of the recovery toward 1.36 before profit-taking or policy commentary introduces the next directional impulse.

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