**GBP/USD Price Forecast: Pound Drops to 1.3160 USD Amid UK Fiscal Crisis**
*By Emily Turner, originally published at TradingNews.com*
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The British pound (GBP) slid sharply to 1.3160 against the US dollar (USD) today, reflecting mounting concerns over a developing fiscal crisis in the United Kingdom. This latest descent marks one of the steepest losses for the pound in recent months, with investors and analysts now weighing the prospects for a broader and more prolonged downturn for GBP/USD. In this detailed analysis, we summarize the factors behind the pound’s slide, the market’s short-term technical and fundamental outlook, and what to watch as the situation in Britain evolves.
### Overview: Pound Under Pressure
– The GBP/USD pair fell to 1.3160, its lowest level since early this year.
– Events in Westminster and the City have heightened volatility and added uncertainty to the outlook for the British economy.
– The pound, which until recently showed resilience, has succumbed to a combination of domestic policy challenges and international headwinds.
### What Triggered the GBP/USD Sell-off?
#### UK Government Fiscal Policy in Focus
A primary driver of the pound’s recent weakness is the growing sense of fiscal instability in the UK. Significant factors include:
– Doubts over the government’s budgetary discipline, following a sharply expansionary fiscal package.
– Concerns around the credibility of fiscal targets and medium-term sustainability, especially as spending rises without offsetting revenue increases.
– Sell-off in UK government bonds (gilts), which sent yields sharply higher, hinting at rising risk premiums demanded by investors.
#### Market Reaction and Contagion Fears
The market’s reaction was swift and severe:
– Sterling dropped over 2 percent in a single session against the dollar—one of its largest daily moves in recent memory.
– UK asset prices, including equities and gilts, saw broad-based declines.
– CLOs, mortgage-backed securities, and other credit markets saw risk spreads widen on fears of spillover effects.
### Economic Data and Bank of England Response
UK economic data has been a mixed bag, but several negatives have recently grabbed headlines:
– Inflation remains stubbornly high, well above the Bank of England’s 2 percent target.
– Unemployment figures have shown slight upticks, raising concerns about labor market slack.
– Retail sales and PMIs have disappointed, suggesting a loss of momentum in key economic segments.
The Bank of England (BoE) is now in a difficult position:
– Some expect the BoE to raise interest rates further to anchor inflation expectations and protect the pound.
– Others argue that tight monetary policy risks exacerbating an increasingly fragile recovery.
### Technical Analysis: GBP/USD at Key Levels
#### Price Movements and Chart Patterns
– GBP/USD’s fall to 1.3160 breaks a crucial support level established in early March.
– Technical indicators, such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD), signal continued bearish momentum.
– The daily chart shows a clear break of the 100-day moving average, with the next key support area seen in the 1.3000-1.3050 range.
#### What to Watch Technically
– Should the pair close below 1.3160 for several consecutive sessions, traders may target 1.3000 as the next stop.
– Resistance lies at 1.3300 — a move above which would be required to dispel current bearish pressure.
– Monitoring volume and open interest in GBP/USD futures may provide further clues about sustained selling or an emerging base.
### Fundamental Challenges Facing the Pound
Several interlocking factors are weighing on the UK economy and the pound:
– **Fiscal Deficit**: The Chancellor’s new budget unveiled major spending plans, including tax cuts and energy support measures, but with little detail on how to pay for them.
– **Government Stability**: Persistent speculation about leadership and intra-party
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