**GBP/USD Price Forecast: Pound Sinks to 1.3097 as UK Fiscal Gaps Hit Sterling After Market Close**
*By TradingNews.com Staff*
The British Pound experienced a sharp downturn against the US Dollar after hitting recent highs, closing the latest session at 1.3097. This decline in the GBP/USD pair came amid growing investor concerns around emerging UK fiscal deficits and uncertainties in the British economic outlook. Sterling, which had rallied over the past several weeks, faced renewed selling pressure as fiscal sustainability came to the forefront following comments from government officials and analysts about the nation’s growing fiscal gaps.
**Sterling’s Rally Stalls as Fiscal Concerns Take Center Stage**
Over recent months, the Pound had benefited from a combination of stronger economic data and an overall weakening in the US Dollar. Hopes that the Bank of England (BoE) would hold interest rates higher for longer, compared to expectations for US Federal Reserve rate cuts, fueled bullish sentiment in sterling markets.
However, optimism was tempered by late-breaking revelations about unresolved UK fiscal gaps. After the market close, new data and official commentary highlighted the risks facing the UK government’s fiscal position. The emergence of these concerns abruptly reversed bullish flows, sending GBP/USD to a fresh low at 1.3097.
**Key Market Drivers Behind the GBP/USD Decline**
Several intertwined factors have contributed to the current weakness in the GBP/USD pair:
– **UK Fiscal Gaps**: Analysts flagged significant holes in the government’s budget, raising fears of either higher borrowing or future spending cuts.
– **BoE Policy Uncertainty**: Despite inflation cooling, the central bank’s commitment to persistent rate hikes is being questioned amidst signs of economic fragility.
– **US Dollar Strength**: Renewed strength in the dollar, following solid US economic data and hawkish tones from Federal Reserve officials, added pressure to cable.
– **Risk-Off Sentiment**: Global investors adopted a more cautious outlook, reducing risk exposure to currencies such as the Pound in favor of perceived safe havens like the US Dollar.
**Detailing the UK Fiscal Issue and Its Market Impact**
At the heart of the recent Pound weakness is the growing realization that the UK government is facing tough fiscal choices. The latest data on tax revenues and public spending point to a sizeable fiscal gap. According to estimates from the Office for Budget Responsibility (OBR):
– The fiscal gap may reach 2.5 percent of GDP by the next budget year.
– The shortfall is attributed to weaker-than-expected tax collections and unexpectedly high spending on welfare and public services.
– Borrowing projections were recently revised upwards by as much as £30 billion for the next fiscal year.
Finance Minister statements after the market close only exacerbated anxiety. The Chancellor acknowledged that addressing the gap would require “difficult decisions” on either spending, taxation, or both.
**Market Reactions: Sterling Sell-off and UK Gilt Moves**
In response, market participants immediately repositioned on Sterling, pricing in the risk that the government may need to announce tax hikes or spending cuts in coming fiscal statements.
– GBP/USD fell sharply, posting a 0.75 percent loss after hours to trade near 1.3097.
– UK gilt yields rose as traders anticipated a greater supply of government debt.
– The FTSE 100 Index also pared gains from earlier in the session.
Dealers noted that UK assets were particularly sensitive to any whiff of fiscal slippage. Memories of the 2022 crisis, when a proposed unfunded tax cut package sent gilts and Sterling into a tailspin, lingered in the collective memory of global investors.
**Technical Outlook for GBP/USD**
With the Pound finishing the session on a bearish outside day, technical analysis suggests a near-term downward bias for GBP/USD.
**Key levels to watch:**
– **Immediate support:** 1.3050 (previous week’s low)
– **Major support:** 1.2980 (top of the pre
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