GBP/USD Price Forecast: Downside Bias Persists Below 100-day SMA as Pair Slips Under 1.3350

• Selling pressure takes GBP/USD towards 1.3320 in early European trade on Thursday.
• Trading below the 100-day SMA keeps the pair’s bias bearish, although neutral RSI momentum leaves room for further consolidation.
• Immediate resistance stands at 1.3385, while 1.3290 marks the first target on the downside.

The British Pound (GBP) remains under pressure against the US Dollar (USD) after the UK Budget, with GBP/USD trading lower near 1.3320 in Thursday’s early European session. Attention later on Thursday will turn to the US Personal Consumption Expenditures (PCE) inflation report for September.

A timetable for raising defence spending to 3% of Gross Domestic Product (GDP) was outlined by the United Kingdom (UK), alongside Finance Minister John Healey’s announcement of billions in aid for Ukraine in a “clear message to Moscow.” On Wednesday, Healey identified 2030 as the target date for reaching 3% and reiterated the UK’s NATO commitment to achieve 3.5% by 2035.

At Wednesday’s October policy meeting, a 10-2 vote by the Federal Open Market Committee (FOMC) kept the benchmark federal funds rate within its existing 3.75% to 4% range. Officials at the Federal Reserve (Fed) expressed hope that forthcoming data would guide their next decision.

What could the UK budget’s fiscal squeeze and issuance plans mean for GBP and gilts?

The UK budget is the key guide for Sterling and the gilt market, according to strategists at Brown Brothers Harriman, who say "GBP and gilts will take their cue from today’s UK budget (12:30pm London, 8:30am New York)." The focus, they add, is on "whether the government preserves the planned fiscal tightening and keeps gilt issuance in check." Recalling the OBR’s March projections, they point to the "cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, to improve from a 0.3% of GDP deficit in 2026/27 to a 0.3% surplus in 2027/28, implying a fiscal drag of 0.6% of GDP." Turning to supply, BBH note that "analysts expect 2026/27 total gilt sales of £249.6bn, up £3.4bn from April’s plan, but £2.5bn below March’s original figure."

For gilts, their assessment is that "maintaining or increasing the fiscal squeeze should support gilts by easing inflation pressure and tempering BOE hike expectations." The implications for Sterling are less straightforward: they caution that "stronger fiscal credibility would compete with lower rate support and limit upside." BBH flag the opposite risk as well, warning that "fiscal slippage and heavier gilt issuance can drive gilt yields up and GBP down."

Can Warsh’s firm 2% inflation commitment sustain Dollar bulls’ interest?

A 7/10 reading on the FXS Speechtracker, unchanged from the established baseline, captures Warsh’s distinctly hawkish press conference tone and consistent stance against inflation. His insistence that “ensuring price stability is not about a fixed date on a calendar,” alongside the assurance of “no ifs and or buts, we will deliver price stability,” points to an unwavering but data-dependent commitment to the 2% PCE target. That resolve is supported by “new monetary medicine” and the recent withdrawal of accommodation. Confidence that tighter policy is taking effect is suggested by repeated references to inflation expectations “going the right way,” wider credit spreads and interest rates beginning to weigh on technology and CAPEX. Further restraint nevertheless remains an option if required.

Hawkish sentiment was also reflected in the FXS Fed Sentiment Index, which surged by +14.39 points to 141.89, substantially above the neutral threshold of 100. Its firmly hawkish reading is consistent with the steady 7/10 FXS Speechtracker score. Together, the elevated index and unchanged tone suggest markets should keep pricing in a strong policy response to inflation. This provides a supportive setting for the Dollar relative to currencies whose central banks are viewed as less determined to secure price stability.

Technical Analysis: Can GBP/USD shake off its bearish bias below the 100-day SMA?

With spot prices remaining below the 100-day simple moving average (SMA), the daily chart points to a mildly bearish short-term outlook for GBP/USD. The pair trades above the middle band of the 20-day Bollinger Bands. However, a neutral Relative Strength Index (RSI) reading near 49 and the nearby upper band suggest consolidation beneath broader overhead supply, rather than the start of a fresh bullish move.

The Bollinger middle band around 1.3290 provides the nearest downside support, ahead of the 15 October low at 1.3184. Below that, the lower Bollinger band near 1.3165 marks the next support area. 

The first upside hurdle is the 100-day SMA at 1.3385, followed by the upper Bollinger band around 1.3420, where sellers could return. A convincing move above that level could open the way towards the 15 July high of 1.3558. 

(An AI tool assisted in preparing the technical analysis in this article. Learn more.)