**GBP/USD Price Forecast: Pound Sinks to 1.3097, UK Fiscal Gaps Hit Sterling After Market Close**
*As originally reported by TradingNews.com, article by Peter S. Newsom*
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The British Pound fell to its lowest levels in over a month against the US Dollar in late trading on Tuesday, closing at 1.3097—reflecting renewed market concerns about the UK’s fiscal gap and its potential impact on future economic stability. Recent statements and policy signals from both the UK government and the Bank of England have done little to steady the ship for Sterling, with investors remaining highly sensitive to any macroeconomic news as global uncertainties mount.
**UK Fiscal Gaps Come Into Focus**
Recent revelations regarding the UK’s widening fiscal gap have triggered fresh selling in Sterling. The Office for Budget Responsibility (OBR) pointed out that the government’s current budgetary position is more precarious than previously thought. With the UK’s public borrowing figures continuing to climb and tax receipts constrained by slower economic growth, market participants are increasingly wary of the implications for both monetary and fiscal policy.
*Key Concerns Cited by Analysts:*
– **Rising Public Debt:** UK debt-to-GDP ratio now exceeds 100 percent, the highest in decades.
– **Weak Revenue Growth:** Tax receipts remain subdued, reflecting tepid economic expansion.
– **Government Spending:** Persistent pressure on public services and support measures has limited austerity options.
– **Borrowing Costs:** Higher yields on Gilts signal investor wariness, raising future debt servicing costs.
– **Political Uncertainty:** Leadership contest results and potential snap elections create additional uncertainty.
These concerns surfaced just as the markets were closing on Tuesday, contributing to Sterling’s late-session slide below the 1.3100 mark against the US Dollar.
**GBP/USD Technical Analysis**
The chart action for GBP/USD in recent days has highlighted a series of lower highs and lower lows—a classic sign of bearish momentum setting in. The break below the psychologically important 1.3100 support level signals further potential downside, barring a significant shift in sentiment or fundamentals.
*Notable Technical Levels:*
– **Immediate Support:** 1.3070 (July swing low)
– **Deeper Support:** 1.3000 (round-number psychological support)
– **Resistance Zones:** 1.3180 (recent intraday high), followed by 1.3250 (earlier monthly high)
– **Relative Strength Index (RSI):** Fell below 40, indicating bearish momentum is dominating
– **Moving Averages:** 50-day moving average now trending lower and crossing below 200-day, a potential bearish signal
Traders are watching closely to see whether sellers push the pair towards the next key supports. A sustained break under 1.3070 opens the path to 1.3000, a level last tested in May.
**Bank of England’s Balancing Act**
Much of Sterling’s price action in recent months has been dictated by shifts in expectations for Bank of England (BoE) interest rate policy.
– **UK Inflation:** Inflation remains elevated, but progress has been slow in bringing it back toward the BoE’s 2 percent target.
– **Interest Rate Outlook:** Market-implied probabilities have retreated from expectations of further significant tightening, as the economic slowdown strains household finances.
– **Growth Concerns:** Output data has disappointed, with the UK economy flirting with stagnation as consumer spending softens and business investment hesitates.
– **Forward Guidance:** BoE officials have struck a cautious tone, indicating they are nearing the peak of the rate cycle. This stands in contrast to some other major central banks, like the US Federal Reserve, which signal a more hawkish stance.
As a result, the yield spread between UK and US two-year government bonds has narrowed, diminishing some of the earlier attractiveness of Sterling versus the Dollar.
**Global Risk Sentiment and the Dollar**
The US Dollar continues to serve as a safe
Read more on GBP/USD trading.