GBP/USD Price Forecast: Cable to test 5-month lows of 1.31400 as fiscal worries worsen

Falling under 1.32000 yesterday, GBP/USD currently trades 1.3176, down -0.13%.

Succumbing to selling pressure, yesterday’s session goes on record as cable’s worst daily performance in thirty-four days.

GBP/USD now looks for support both at monthly lows and the 200-day SMA, or will risk a further move to the downside.

What’s next for GBP/USD?

Let’s discuss.

• While still up around 5.40% year-to-date, owing mainly to dollar downside as opposed to pound strength, GBP/USD has recently fallen to 5-month lows of 1.31400

• Later this week, an Office for Budget Responsibility (OBR) assessment is expected to rein in productivity estimates for the UK economy, boding poorly for investor sentiment on the UK economy, weighing harshly on sterling pricing
  
  
• Bank of England Governor Andrew Bailey has recently acknowledged softening labour conditions and poor economic growth, but will be hard-pressed to cut rates in the upcoming decision, while inflation is nigh on twice the target of 2%

Read about Q3 earnings season: U.S. Companies Surprise with Strong Sales Results

As an Englishman, I can say that the collective feeling amongst the British public regarding the UK economy currently leaves much to be desired.

The highest inflation of any G7 nation, rising unemployment, and, at best, a middling economy.

Safe to say, things are not looking too peachy going into Chancellor of the Exchequer Rachel Reeves' budget next month, which is almost sure to raise taxes in some capacity.

Put simply, the current outlook for the UK economy, particularly in terms of public finances, is less than stellar, which is encouraging those to sell sterling in favour of other currencies.

Let’s take a look at two headline macroeconomic themes within GBP/USD markets.

Markets are nervous of UK fiscal woes: While the public finances of many developed nations are currently somewhat dubious at best, this is particularly true for the United Kingdom, with a multibillion-pound hole that needs to be addressed by the upcoming budget in November.

While developments concerning the budget continue to do the media rounds, which will inevitably only increase as November 26th approaches, Rachel Reeves is stuck between a rock and a hard place, between honoring campaign pledges not to raise taxes on working people and VAT while simultaneously needing to find an estimated £30bn to balance spending with tax income.

To make matters worse, and coming at an inopportune time for the Chancellor of the Exchequer, an assessment to be released on Friday by the Office for Budget Responsibility (OBR) is expected to substantially downgrade UK productivity forecasts, resulting in a further estimate of £20 billion in shortfall.

Not to mention: government borrowing also exceeded estimates in the first half of 2025 by £7.2bn as per last week’s OBR commentary.

Tying this back to GBP/USD, however, is remarkably simple: the fiscal health of the UK economy appears to be worsening, and investors are collectively demanding a higher level of risk premium to hold sterling-denominated assets.

This fundamental downgrade in sterling’s rating when compared to other stores of wealth is what has led, in no small part, to recent GBP/USD downside.

The UK economy is at serious risk of stagflation. Granted, the term is often used loosely, but stagflation is a genuine concern for the UK economy. Currently, the Bank of England is faced with a serious ‘catch-22’:

• Rising unemployment, now at 4.8%, its highest level since July 2021
• Poor GDP growth, with recent estimates for Q2 at a measly 0.3%
• Stubborn inflation, at 3.8% YoY in September and, crucially, almost double the 2.0% target

Naturally, the top two bullets would support the notion of cutting rates, while stubborn inflation would support hiking, putting Governor Andrew Bailey and his team of decision makers in an unenviableposition.

While the Bank of England is due to vote on monetary policy on November 6th, most predict their hand will be forced in maintaining rates at 4.00%, owing to recent inflation trends.

By extension, a decision to hold would put further pressure on an already weak UK labour market and economy, which seems to be a conclusion the markets have already come to, with the first possibility of a rate cut expected to be in February 2026 at the time of writing.

At least one outcome of the above is the apparent decline in sterling value, with the current situation for the Bank of England enough to spook investors into rethinking their exposure to GBP.

Having traded in range for some time, recent downside could be enough to break consolidation to the downside.

Fair to say, recent performance is decisively bearish, with a pin bar forming in yesterday’s session that bears will look to fill today.

Now with 5-month lows of 1.31400 and the 200-day SMA, GBP/USD will need to find support or risk a further move down:

Price targets and support/resistance levels:

• Price target/Resistance #1 - $1.31403 - Triple bottom lows
• Price target/Resistance #2 - $1.31011 - April highs/structure
• Support #1 - $1.32904 - Previous consolidation

Read Łukasz’s analysis on US equities in today’s session: U.S. Companies Surprise with Strong Sales Results