GBP/USD forecast: US dollar surges as bonds implode
The US dollar continued to press higher deep into the European session, supported by the slump in the bond markets as yields broke out across the curve. Following the recent hawkish Fed rate hike, yield spreads between the US and the rest of the world has continually increased, and that motion continued today, helped in part by some forecast-beating US macro data and hawkish Fed commentary.
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The US dollar continued to press higher deep into the European session, supported by the slump in the bond markets as yields broke out across the curve. Following the recent hawkish Fed rate hike, yield spreads between the US and the rest of the world has continually increased, and that motion continued today, helped in part by some forecast-beating US macro data and hawkish Fed commentary. So, down went the major pairs like the EUR/USD and GBP/USD, gold and Bitcoin; up went the USD/JPY and USD/CHF as the greenback rallied across the board. The GBP/USD has been hurt further by the recent dovish Bank of England rate decision. As before, we maintain a short-term bearish GBP/USD forecast.
Dollar surges and bond markets implode with yields breaking out
The dollar continues to show resilience despite the recent softer energy prices and a more risk-friendly backdrop. Both of those factors have reversed today, with oil bouncing back and indices taking a dip. The Fed story remains the dominant force in FX, with hawkish policymakers doing enough to keep the dollar in demand. Economic data has also been supportive today as the S&P Global US composite PMI jumped to 58.4 from 56.0 in August, reaching it highest level since July 2021. Services led the advance and hiring strengthened, but businesses also reported higher input costs – pointing to more inflation and giving the Fed more reason to raise rates again.
The result of the hawkish FedSpeak and rising bets of policy tightening have sent the US 10-year yields above 5.0% and 30-year yields were testing 2007 highs.
BoE also applies pressure on sterling
The Bank of England was softer than markets had anticipated last week, and this has no doubt played a part in the GBP/USD exchange rate falling in recent days.
The bank acknowledged that rates could rise if the energy shock persists and starts generating second-round effects. But Governor Bailey offered little commitment to a November move, while policymakers noted that there is still “little evidence so far of material second-round effects”.
That may ultimately prove to be proven wrong. The more consequential announcement, however, was the overhaul of quantitative tightening. The BoE said it will halt gilt sales for six months and stop selling its long-dated holdings altogether.
Technical GBP/USD forecast and levels to watch
The GBP/USD has taken a dump along with other major pairs, but the technical damage could weigh on the pair for a while now given that it has broken a key level around 1.3270ish. The June low sits at 1.3140 and the November 2025 low is at 1.3010. Those are the next targets on the downside, and we could get there fairly quickly unless something changes fundamentally. On the upside. 1.3335 is now the most important resistance area to watch now. The 200-day average and next resistance comes in around 1.3450-70 area.
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