• The GBP/USD forecast remains subdued as UK PMI data signals slowing growth.
• Fiscal deterioration and rising gilt yields weigh heavily on Sterling sentiment.
• The Fed’s hawkish tilt offsets the recent rate cut, supporting the dollar against the GBP.

The British pound came under renewed selling pressure on Tuesday after the UK PMI for September came in downbeat. The Composite PMI slipped to 51.0 against the expected 52.7 and previous 53.5. It suggests that business activity continues to expand, albeit at a slower pace. The manufacturing PMI showed a deeper contraction, falling to 46.2, below the consensus of 47.0, while services cooled to 51.9 from 54.2.

Chief Economist at S&P Global Market Intelligence, Chris Williamson, flagged a litany of concerning news, including weak overseas demand, rising job losses, and declining business confidence. The slowdown comes against the backdrop of a strained UK fiscal outlook.

The UK public finances further declined in August as borrowing rose to £18 billion, the highest level in five years. Cumulative borrowing in the current fiscal year already exceeds official forecasts, leading to higher gilt yields. Markets are now bracing for Rachel Reeve’s autumn budget in November, which could signal fiscal tightening or more spending pressure.

Meanwhile, the Bank of England kept interest rates unchanged at 4.0% last week and reiterated its gradual approach to easing amid stubborn inflation above 2%. The fear of stagflation also persists as growth stagnates while inflation lingers higher.

On the US side, the Federal Reserve delivered its first rate cut in 2025. Still, Fed Chair Powell struck a hawkish tone, warning of weakness in the labor market while emphasizing the Fed’s commitment to controlling inflation. The retail sales data and jobless claims reinforced US growth momentum.

The combination of a hawkish Fed and a fragile UK fiscal situation is weighing on the GBP/USD, which is currently consolidating at 1.3500 after falling to the 1.3450 area last week.
 

Key Events Ahead

• US PMIs: The US PMIs could weigh on the pair as the data is important for the Fed to gauge economic sentiment.
• Jerome Powell’s speech: Markets await fresh guidance from the Fed Chair on future rate cuts and labor market conditions.
• Comments from Fed officials: Michele Bowman, Raphael Bostic, Stephen Miran, and Beth Hammack may shape near-term USD expectations.
• UK Autumn Budget (November): Investors will watch whether Chancellor Reeves signals fiscal tightening or additional borrowing.
• Upcoming UK data: Inflation, retail sales, and consumer confidence figures will be key in shaping BoE policy expectations.
   

GBP/USD technical forecast: Key MAs to set trend
 

(Click on image to enlarge)

GBP/USD 4-hour chart
 

The GBP/USD price wobbles around the key MAs around 1.3500 on the 4-hour chart. A sustained breakout of the 200-period MA could ignite a selling momentum leading to a deeper correction. The RSI is now out of the oversold region but remains below the 50.0 mark, indicating a prevailing weakness.

The immediate support appears at 1.3500 ahead of the previous week’s lows of 1.3450 and then 1.3400. On the upside, 1.3550 remains the immediate target for the bulls ahead of 1.3600.

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