**GBP/USD Price Forecast: Pound Sinks to 1.3097 as UK Fiscal Gaps Hit Sterling After Market Close**
Original Author: Daniel Cumming, TradingNews.com
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### Introduction
The British Pound (GBP) faced significant downward pressure against the US Dollar (USD) in recent trading sessions, settling around 1.3097 after the UK market close. This movement follows revelations of widening fiscal gaps in the United Kingdom, which have cast shadows over market sentiment and prompted traders to reassess the near- to medium-term outlook for Sterling. In this comprehensive analysis based on Daniel Cumming’s coverage at TradingNews.com, we dissect the fundamental factors, technical signals, and broader macroeconomic backdrop shaping the GBP/USD pair’s performance and probable trajectory.
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### The Widening UK Fiscal Gap: What It Means
At the heart of recent Sterling depreciation is the emergence of significant fiscal imbalances within the UK’s public finances. The government’s disclosures after market close highlighted a deteriorating fiscal position, causing immediate reactions in both FX and fixed income markets.
**Key details about the UK fiscal gaps:**
– **Public Sector Borrowing:** Recent data showed that the government’s borrowing requirement surpassed both market expectations and previous forecasts.
– **Debt-to-GDP Ratio:** The UK’s debt as a proportion of GDP has reached multi-decade highs, fostering concerns about long-term fiscal sustainability.
– **Budget Deficit:** The deficit has ballooned, reflecting both higher spending (cost-of-living support measures, energy subsidies) and weaker-than-expected tax revenues as the economy slows.
Market participants interpret increased government borrowing as a risk factor for the Pound for several reasons:
– Rising debt levels may elevate the risk premium demanded by investors holding UK assets.
– A larger fiscal deficit could reduce the government’s flexibility to respond to further economic or geopolitical shocks.
– Markets fear additional gilt supply (UK government bonds), which can weigh on bond prices and push yields higher, thereby increasing funding costs.
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### Sterling’s Market Reaction: Why the Pound Sold Off
The GBP/USD pair’s descent to 1.3097 was not a random movement but rather a calculated reaction to the above fiscal concerns. Currency professionals and institutional investors moved to reduce exposure to Sterling for the following reasons:
– **Perceived Deterioration in UK Creditworthiness:** As public sector finances worsen, the credit risk associated with holding Sterling-denominated assets rises.
– **Flight to Safety:** Amid global macroeconomic headwinds, safe haven flows benefited the USD, compounding the pressure on GBP.
– **Diminished Monetary Policy Scope:** Larger fiscal deficits could constrain the Bank of England’s (BoE) ability to maintain or tighten policy, especially if fiscal and monetary policy move in opposite directions.
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### Technical Analysis: GBP/USD Levels to Watch
From a technical standpoint, the GBP/USD chart reveals several critical areas and underlying trends worth noting.
**Key GBP/USD chart points:**
– **Support at 1.3090:** After the sharp fall, immediate support is eyed near 1.3090, a level tested several times during the latest session.
– **Resistance at 1.3150-1.3200:** On the upside, 1.3150 and the psychologically significant 1.3200 represent near-term resistance.
– **Shift in Momentum Indicators:** RSI (Relative Strength Index) and MACD (Moving Average Convergence Divergence) have turned negative, highlighting the accelerating bearish momentum.
– **200-Day Moving Average:** The pair is trading below its 200-day simple moving average, signaling a longer-term bearish bias as long as it remains below this major trend indicator.
– **Fibonacci Retracement Levels:** Analysts are focused on retracement zones from the recent swing low to high, with the 38.2% level around 1.3080 and 50% at 1.3030 serving as possible next support levels.
**Chart patterns signal:**
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