GBP/USD Price Forecast: Seems vulnerable amid BoE’s dovish pause, firmer USD

The GBP/USD pair prolongs this week's retracement slide from its highest since early July for the third straight day and slides below the 1.3500 psychological mark, or a two-week trough during the early European session on Friday. The US Dollar (USD) sticks to its post-FOMC strong recovery gains from a three-and-a-half-year low. Furthermore, the Bank of England's (BoE) dovish outlook contributes to the British Pound's (GBP) underperformance and exerts additional pressure on the currency pair.

A hawkish assessment of Federal Reserve (Fed) Chair Jerome Powell's remarks on Wednesday remains supportive of the USD move up for the third straight day. The US central bank, as was anticipated, lowered borrowing costs by 25 basis points (bps) for the first time since December 2024 and indicated that more interest rate cuts would follow by the year-end amid the softening labor market. However, Powell told reporters during the post-meeting press conference that risks to inflation are tilted to the upside and that the Fed's rate reduction move was a risk management cut. Powell added that he doesn't feel the need to move quickly on rates and that the Fed is in a meeting-by-meeting situation regarding the outlook for interest rates.

Adding to this, data released on Thursday showed the number of Americans filing new claims for unemployment benefits fell sharply from a near four-year high and came in a seasonally adjusted 231,000 for the week ended September 13. Furthermore, the Philadelphia Fed Manufacturing Index rose more-than-expected 23.2 in September, or the highest level since January. This keeps the US Treasury bond yields elevated near a two-week high and fuels the upward momentum in the USD Index, which tracks the Greenback against a basket of currencies. Apart from this, geopolitical risks stemming from the intensifying Russia-Ukraine war and conflicts in the Middle East push the safe-haven buck to the top end of the weekly range.

Meanwhile, the BoE's Monetary Policy Committee (MPC) voted 7-2 to keep the benchmark interest rate unchanged at 4% on Thursday amid persistent inflationary pressures. That said, BoE Governor Andrew Bailey said that there will be some further rate reductions, but the timing and scale of those are more uncertain now. This, along with uncertainties over the UK's upcoming November 26 budget, overshadows the upbeat UK Retail Sales figures and continues to weigh on the GBP/USD pair. In fact, the UK Office for National Statistics (ONS) reported that Retail Sales climbed 0.5% in August, matching a downwardly revised growth of 0.5% recorded in the previous month and beating broader consensus estimates for a 0.4% increase.

Nevertheless, the GBP/USD pair remains on track to end the week on a downbeat note and the fundamental backdrop backs the case for a further near-term depreciating move.

GBP/USD 4-hour chart

Technical outlook

An intraday breakdown below the 38.2% Fibonacci retracement level of the recent move up from the August monthly swing low, around the 1.3500 mark, validates the near-term negative outlook for the GBP/USD pair. Moreover, oscillators on the daily chart have just started gaining negative traction and suggest that the path of least resistance for spot prices remains to the downside. Hence, a subsequent fall towards testing the 50% Fibo. level, around the 1.3435-1.3430 area, looks like a distinct possibility. Some follow-through selling, leading to a subsequent slide below the 1.3400 round figure, would expose the monthly swing low, around the 1.3335-1.3330 region.

On the flip side, any meaningful recovery attempt could face an immediate hurdle near the 1.3550-1.3555 horizontal zone ahead of the 23.6% Fibo. level, around the 1.3600 neighborhood. A sustained strength beyond the latter might shift the near-term bias back in favor of bullish traders and lift the GBP/USD pair to an intermediate resistance near mid-1.3600s en route to the 1.3700 mark and the monthly swing high, around the 1.3725 region.