**GBP/USD Price Forecast: Sterling Rises on Weak US Jobs, Faces UK Fiscal Headwinds**
*By John Smith, TradingNews.com*
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The British pound (GBP) has shown notable resilience in recent sessions, pushing higher against the US dollar (USD) as softening US economic data raised questions around the Federal Reserve’s next policy moves. However, bullish momentum for sterling is increasingly checked by renewed worries about the UK’s fiscal position, as government headwinds threaten to weigh on economic growth and investor confidence. This article explores the interplay of US and UK fundamentals shaping short- and medium-term GBP/USD dynamics, providing an in-depth outlook for traders and investors.
### Recent GBP/USD Performance
The GBP/USD pair started the week under pressure but rebounded sharply following the release of US non-farm payrolls data. The greenback weakened across the board as labor market data missed estimates, fueling bets that the Federal Reserve could pause its rate hike cycle sooner than anticipated.
– On Friday, US jobs data revealed:
– Non-farm payrolls came in below consensus forecasts
– Unemployment rate ticked higher to 4.1%
– Average hourly earnings growth softened
– Market reaction:
– The dollar index sagged as investors priced in fewer Fed rate hikes
– GBP/USD surged, breaking above its 100-day moving average
Sterling’s quick recovery against the dollar highlighted a theme seen throughout 2024: currency moves remain sensitive to interest rate expectations and divergent economic prospects on both sides of the Atlantic.
### US Macro Picture: Dollar’s Waning Momentum
After a period of outperformance in 2023 and early 2024, the US dollar has lost some momentum amid mounting signs of US economic deceleration. Data releases from the last two weeks underscored this shift:
– The ISM services index fell back into contraction territory
– Second-quarter GDP growth forecasts have been revised lower
– Core inflation figures eased month-on-month, moving closer to the Fed’s 2% target
These developments have forced a repricing in Fed funds futures, with markets now viewing rate cuts as more likely before year-end. The anticipation that US yields could peak and even begin to decline removes a key pillar of dollar strength.
For the GBP/USD, this shift benefited sterling as carry trades unwound and speculative short-dollar positions increased. Unless US data surprises to the upside, the bias appears to favor additional dollar softness in the near term.
### UK Outlook: Sterling’s Fiscal Hurdles
While global dollar dynamics are supportive, sterling’s ability to capitalize on the greenback’s pullback is limited by unresolved UK fiscal challenges and tepid domestic growth forecasts.
#### Key challenges facing the UK:
– The UK government’s debt-to-GDP ratio remains elevated at over 100%
– The Office for Budget Responsibility projects limited fiscal headroom over the next three years
– Public borrowing has overshot expectations due to sluggish tax revenues
– Recent statements from the Chancellor of the Exchequer emphasized the need for fiscal discipline
Investors are increasingly questioning the sustainability of government spending against a backdrop of higher interest payments and subdued economic growth. As a result, gilts have sold off periodically, raising base borrowing costs for both public and private sectors.
#### Impact on sterling:
– Heightened fiscal uncertainty dampens appetite for UK assets
– Risk premia embedded in gilt yields make UK government debt more expensive to service
– Currency traders remain wary of long sterling positions amid uncertain budgetary prospects
### Bank of England Policy Stance
Monetary policy remains another crucial driver for GBP/USD. The Bank of England (BoE) is treading a careful path as it juggles stubborn inflation and subpar economic activity.
#### Key points on BoE policy:
– Inflation remains above the central bank’s 2% target, though it has moderated recently
– Wage growth has cooled, but services inflation is still sticky
– The BoE has adopted a “
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