GBP/USD Price Forecast: Sterling at 1.3556 With Fed Cut Bets Driving Upside

GBP/USD Under Fed Cut Pressure and UK Stagnation Risks

Sterling ended the week trading at 1.3556, slightly softer after hitting a daily high of 1.3580, as the US Dollar (USD) attempted to recover modest ground. The latest U.S. inflation figures showed CPI rising from 0.3% to 0.4% month-on-month, with the annual figure firm at 2.9%, confirming that prices remain elevated above the Fed’s 2% target. At the same time, U.S. unemployment claims rose unexpectedly, highlighting cracks in the labor market. These dual signals—sticky inflation but weaker jobs—pushed markets to fully price in a 25 bps Federal Reserve rate cut in the upcoming policy meeting. The pound capitalized on the weaker dollar tone, but lackluster U.K. macro data capped gains.

Labor Market and UK Growth Outlook Weigh on Sterling

The U.K. Office for National Statistics reported that GDP growth stalled in July after a 0.4% expansion in June, while factory activity softened. Traders remain cautious ahead of this week’s employment and inflation releases, which will determine whether the Bank of England (BoE) accelerates easing or continues its gradual approach. Current swaps price a 33% chance of another rate cut before year-end, but that probability will shift depending on wage growth data and retail sales momentum. Fiscal concerns have also pressured gilt markets, keeping a lid on sterling rallies despite broader dollar weakness.

Fed Policy Shift Dominates GBP/USD Sentiment

The GBP/USD (FX:GBPUSD) pair remains highly sensitive to Fed dynamics. With unemployment claims rising and CPI stable, traders see Wednesday’s Fed decision as pivotal. A dovish cut, paired with forward guidance pointing to more easing, could drive GBP/USD toward 1.3595 resistance and set up a test of the 1.3787 high. However, if the Fed signals a one-off adjustment without a full easing cycle, the dollar could stabilize, leaving sterling vulnerable to domestic weakness.

Technical Setup and Key Levels

Technically, GBP/USD trades above both its 200-day SMA at 1.3087 and the 50-day SMA at 1.3464, keeping the medium-term bias tilted upward. Momentum indicators lean bullish with RSI holding above 50, but price action shows repeated rejection near 1.3595, a swing high that capped rallies in August. A decisive break above would expose 1.3787, while failure here risks a retracement toward 1.3332 support. Deeper losses could test the 1.3200 region, a level that bulls defended earlier in the summer.

Comparisons with Dollar Index and Cross-Currencies

The U.S. Dollar Index (DXY) trades at 97.615, holding just above its support at 97.253. Its inability to reclaim the 50-day SMA at 98.121 confirms that broad dollar weakness is still a theme. EUR/USD holds steady at 1.1735, benefitting from the same dollar softness, while USD/JPY trades at 147.67, underpinned by yields. The pound’s relative outperformance hinges on U.K. releases, but against a weakening greenback, GBP/USD remains better positioned than sterling’s performance versus the euro or yen.

Forward Outlook and Volatility Triggers

The upcoming Fed meeting on Wednesday, coupled with U.K. labor market data, will define the near-term trajectory for GBP/USD. Traders will also track U.S. retail sales, as any sign of consumer slowdown could reinforce easing bets and weigh on the dollar further. If sterling clears 1.3595 resistance, markets will quickly shift to test 1.3787; a failure could pull the pair back into the 1.33–1.34 consolidation zone. With gilts under pressure and U.S. fiscal uncertainty climbing, volatility is expected to rise, making this week’s sessions highly consequential for positioning.

Buy, Sell, or Hold Verdict

At 1.3556, GBP/USD sits at an inflection point. With Fed cuts imminent, the dollar remains vulnerable, giving sterling a tactical advantage. However, the stagnant U.K. growth backdrop and fiscal concerns limit the longer-term bullish case. Near-term technicals argue for further upside if 1.3595 breaks, setting up a push to 1.3787, but the risk of a pullback into the 1.3332–1.3400 band remains high if resistance holds. Based on current conditions, GBP/USD carries a Buy bias in the short term, but only while Fed easing dominates. Should U.K. data weaken further, the pair risks flipping to a Hold as domestic headwinds reassert themselves.

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