**GBP/USD Price Forecast: Pound Drops Toward 1.3149 as UK Faces Fiscal Shock and Weak Growth**
*By Trading News Staff, based on content by Emily Adams*
The British Pound (GBP) came under renewed selling pressure this week, with GBP/USD falling rapidly toward the 1.3149 level. Fragile market sentiment has been triggered by a combination of escalating fiscal pressures in the United Kingdom and a string of disconcerting economic data that highlights tepid growth. The following analysis explores the factors currently driving the price action of GBP/USD, as well as the broader implications for currency traders navigating this uncertain environment.
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**Key Drivers of the GBP/USD Downtrend**
The British Pound’s recent slide against the US Dollar has not occurred in a vacuum. A blend of domestic UK economic challenges, shifting monetary policy outlooks, and external influences have all converged to create a perfect storm for sterling bears. Here are the principal factors:
– **UK Fiscal Shock:**
The UK government now finds itself grappling with a ballooning budget deficit, as public spending outpaces revenue. The Office for Budget Responsibility recently revised its forecasts, warning of a significant uptick in the deficit for the coming quarters.
– Chancellor Jeremy Hunt’s Spring Budget revealed that additional spending on social services and persistent inflation have strained fiscal resources.
– Markets have now started to price in the possibility that further fiscal tightening may be needed, dampening sentiment toward British assets.
– **Weak Economic Growth:**
The UK’s growth outlook remains precarious. The most recent GDP report showed stagnation, with quarterly growth barely in positive territory.
– The services sector, responsible for a major share of UK output, has lost momentum as consumers scale back spending amid the ongoing cost-of-living crisis.
– Manufacturing and construction surveys (PMIs) have also undershot expectations, highlighting broad-based weakness.
– **Inflation and Monetary Policy:**
UK inflation has eased from its double-digit highs but continues to outpace both wage growth and comparable rates in the US and Eurozone.
– The Bank of England (BoE) has signalled a more cautious approach to further rate hikes, arguing that underlying inflationary pressures are starting to dissipate.
– This divergence from the US Federal Reserve’s still-hawkish tone has shifted rate expectations and compounded GBP downside.
– **US Dollar Strength:**
The Dollar Index (DXY) has found renewed support on the back of robust US economic data.
– US labor market strength and resilience in consumption have kept alive the possibility of another rate increase by the Federal Reserve.
– Global risk aversion, fueled by geopolitical flashpoints and volatile equity markets, further supports USD as investors seek safe-haven assets.
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**GBP/USD Technical Outlook**
Technical analysis underscores the growing vulnerability of GBP/USD, as downside momentum accelerates on multiple timeframes.
– **Price Action:**
– GBP/USD breached the 1.3200 support zone, with sellers now targeting the July low near 1.3149.
– The next critical technical support is found at 1.3100, a level that held firm during the currency pair’s June retracement.
– **Moving Averages and Indicators:**
– The pair has decisively pierced below its 50-day and 100-day simple moving averages, indicating a toxic mix of short-term and medium-term bearish sentiment.
– Relative Strength Index (RSI) readings point to growing downside pressure but are not yet signaling deeply oversold conditions, suggesting there’s room for further declines.
– **Fib Retracement Levels:**
– The broader uptrend from March to early June could see further unwinding, with Fibonacci retracement levels at 1.3090 (38.2 percent) and 1.3030 (50 percent) providing additional downside targets if selling intensifies.
**Bullish Scenarios?**
– Any sharp reversal in the pair would
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