• GBP/USD forecast turns up, testing 1.3500 as weak US labor data and the government shutdown pressure the dollar.
• The BoE is cautious on policy, with Deputy Governor Breeden warning that inflation risks could fall below the target.
• Fed cuts priced in, but Treasuries’ safe-haven appeal may limit sustained dollar downside.

The GBP/USD forecast tilts higher as the price hovers around 1.3500 in Thursday’s London session, supported by broader dollar weakness after dismal US jobs data and the ongoing US government shutdown. The dollar index remains vulnerable at mid-97.00, near weekly lows.

The recent ADP employment report showed a significant deterioration in the US jobs market, with private employers reducing 32,000 jobs in September, compared to the forecast of 51,000 additions. August figures were also revised from reported 54,000 to a loss of 3,000 jobs. This weaker data print, combined with ongoing fiscal concerns, has reinforced the odds that the Fed will reduce rates this month to 3.75 – 4.00%. The CME FedWatch tool shows a 99% probability for the October rate cut.

However, the analysts caution that the Fed’s dovishness does not necessarily mean sustained dollar weakness. Historically, the Fed’s cuts have been dollar-supportive at times, as investors have sought safety in US Treasury yields. With key data releases paused due to the shutdown, market participants are turning to Treasuries as a defensive play, inadvertently supporting the US dollar.

Across the Atlantic, the sterling outlook remains clouded due to shifting expectations for monetary policy. BoE Governor Breeden warned this week that tighter policy could drag inflation below 2% target. Her cautious stance suggests a groundwork for rate cuts if momentum continues to cool. Meanwhile, the BoE still projects inflation at around 4% in September, attempting to strike a balance between price pressure and growth.

The mixed signals have put the pound trading broadly higher against major peers, except the NZD. Yet analysts note that sterling’s relative strength against the dollar is specifically essential.
 

Key Events Ahead: US Jobless Claims

The US weekly jobless claims data is due today, which could provide fresh impetus to the market. However, headlines surrounding the US government shutdown and Treasury yields are also essential.
 

GBP/USD Technical Forecast: Make or Break at 200-MA
 

(Click on image to enlarge)

GBP/USD 4-hour chart
 

The GBP/USD stays neutral around the 1.3500 level and 200-period MA. A sustained move above 1.3500 could lead to a test of the 23rd September highs of 1.3537, ahead of another critical level at 1.3580. The 20- and 50-period MAs are looking to form a bullish crossover, while the RSI remains above the 50.0 level, suggesting room for more upside.

On the other hand, failing to break above the 1.3500 level could strengthen the selling bias, leading to a confluence of 20- and 50-period MAs around 1.3450. Sustained weakness could further drag the pair towards 1.3400.

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