The GBP/USD pair is in a downward trend, hovering around 1.3320 as the early European session unfolds on Thursday. The British Pound (GBP) has lost ground against the US Dollar (USD) following the UK Budget announcement. Eyeing the market later today, the US will release the September Personal Consumption Expenditures (PCE) inflation report, which is expected to be significant.
The UK has set an ambitious target for defense spending, aiming to reach 3% of its Gross Domestic Product (GDP). Finance Minister John Healey revealed plans to provide substantial aid to Ukraine, sending a clear signal to Moscow. During a Wednesday announcement, he indicated that the target year for this 3% figure is 2030, while reaffirming a commitment to NATO’s goal of 3.5% by 2035.
In a recent policy meeting held on Wednesday, the Federal Open Market Committee (FOMC) voted 10-2 to maintain the federal funds rate between 3.75% and 4%. Officials from the Federal Reserve (Fed) expressed hopes that forthcoming data would aid in determining future decisions.
GBP and gilts watch UK budget for signals on fiscal squeeze and issuance path
Analysts at Brown Brothers Harriman suggest that “GBP and gilts will be influenced by today’s UK budget (12:30pm London, 8:30am New York),” with a keen focus on whether the government will stick to its plan for fiscal tightening and control gilt issuance. They point out that, in March, the Office for Budget Responsibility (OBR) projected the “cyclically adjusted primary balance,” which excludes interest costs and adjusts for economic changes, to shift from a 0.3% GDP deficit in 2026/27 to a balanced surplus in 2027/28, signifying a fiscal drag of 0.6% of GDP. On the issuance side, BBH notes that “analysts anticipate 2026/27 total gilt sales of £249.6bn, reflecting a £3.4bn increase from April’s expectation, but £2.5bn lower than March’s original projection.”
They suggest that “maintaining or tightening fiscal policies could bolster gilts by alleviating inflation concerns and moderating Bank of England rate hike expectations.” However, they caution that “increased fiscal credibility might offset a lower rate landscape, limiting potential gains for the Pound.” Conversely, BBH warns that “any fiscal overspending and increased gilt issuance could elevate gilt yields and depress the GBP.”
Warsh underscores unwavering 2% inflation goal, keeping Dollar bulls engaged
The tone during Warsh’s press conference was distinctly hawkish, as reflected in a score of 7/10 on the FXS Speechtracker. His statements emphasized that “ensuring price stability isn’t tied to a specific calendar date” and that there would be “no ifs, ands, or buts, we will achieve price stability,” indicating a firm, data-driven commitment to the 2% PCE goal. This commitment is underpinned by “new monetary tools” and the recent withdrawal of accommodations. Frequent references to improving inflation expectations, wider credit spreads, and the impact of higher rates in technology and capital expenditure suggest confidence in tighter monetary policy, while keeping options open for additional measures if necessary.
The FXS Fed Sentiment Index saw a notable rise of +14.39 points, reaching 141.89, clearly in hawkish territory and significantly above the neutral point of 100. This dynamic, coupled with the steady tone, suggests that markets will likely continue to anticipate a strong response to inflation, providing a supportive environment for the Dollar relative to currencies of central banks perceived as less committed to price stability.
Technical Analysis: Negative outlook of GBP/USD remains intact under the 100-day SMA
Looking at the daily chart, the GBP/USD pair exhibits a slightly bearish trend in the near term, remaining below the 100-day simple moving average (SMA). Current prices are above the 20-day Bollinger middle band, but the closeness to the upper band along with a neutral Relative Strength Index (RSI) around 49 indicates a consolidation phase under a broader supply, rather than a new bullish movement.
On the downside, immediate support is seen at the Bollinger middle band near 1.3290, followed by the low of 1.3184 from October 15. Further down, additional support lies at the lower Bollinger band close to 1.3165.
On the upside, initial resistance is at the 100-day SMA around 1.3385, moving towards the upper Bollinger band near 1.3420, where selling pressure may re-emerge. A significant break above this level could lead to the July 15 high of 1.3558.
(The technical analysis of this story was done with assistance from an AI tool.)
