GBP/USD Weekly Forecast: Pound Sterling sellers return; focus shifts to Fed

The Pound Sterling (GBP) faced rejection once again on its way to the 1.3500 level when compared with the US Dollar (USD), sending GBP/USD back toward the 1.3300 mark.

The pair felt the heat of the USD resurgence as a safe-haven asset, while increased dovish bets surrounding the Bank of England’s (BoE) interest rate outlook added to its downside.

Growing geopolitical and trade tensions dented risk appetite at the start of the week, lifting the haven demand for the Greenback at the expense of the higher-yielding Pound Sterling.

US President Donald Trump threatened late Monday to slap 155% tariffs on China from November 1 unless they make a deal. This came even after US Treasury Secretary Scott Bessent’s comments that he would meet with Chinese Vice Premier He Lifeng in Malaysia to de-escalate the renewed trade tensions over rare earth metals and software.

Toward midweek, tensions eased on the US-China trade front as Trump touted a fair deal with China during his meeting with China’s President Xi Jinping in South Korea on October 30.

However, the relief to markets was only short-lived as risk-off flows returned after Trump imposed sanctions on Russian oil companies and accused the Russians of a lack of commitment toward ending the war in Ukraine.

Markets also digested the disappointing earnings reports from US tech giants. Tesla reported below forecast profits, while Netflix tumbled on a grim outlook.

The Office for National Statistics (ONS) showed on Wednesday, consumer inflation held steady at 3.8% last month, defying the expected 4% growth.

“Traders rushed to price a 75% chance of the BoE cutting rates by its December meeting - up sharply from a 46% probability before the data was published - although those odds eased back to 61% on Thursday,” according to Reuters.

On Friday, the ONS reported that UK Retail Sales unexpectedly rose 0.5% over the month in September, marking a fourth consecutive monthly increase. Meanwhile, the headline S&P Global Flash UK Composite PMI registered 51.1 in October, up from 50.1 in September and above the 50.6 expected. The Pound Sterling found little inspiration from the upbeat data but failed to stage a decisive rebound.

Heading into the weekend, GBP/USD remained near the lower limit of its weekly range as investors assessed mixed macroeconomic data releases from the US. Annual inflation, as measured by the change in the Consumer Price Index, edged higher to 3% in September from 2.9% in August. This reading came in below the market expectation of 3.1%. On a positive note, S&P Global Composite PMI improved to 54.8 in October's flash estimate from 53.9 in September.

Eyes on the Fed verdict and potential US data released

Markets are expecting that the budget deadlock between Democrats and Republicans could end anytime soon, paving the way for the release of a string of delayed US economic data in the upcoming week.

In case the government funding is restored, the September US Nonfarm Payrolls reports will be published and will hog the limelight alongside the Fed’s October 28-29 monetary policy meeting.

A bunch of other top-tier statistics from the US will also be closely eyed for fresh hints on the Fed’s rate cut outlook.

Traders will look forward to the US Durable Goods Orders, the advance third-quarter Gross Domestic Product (GDP) and the core Personal Consumption Expenditure (PCE) Price Index.

The Fed officials will return to the rostrum on Thursday, following the end of the ‘blackout period’.

Additionally, the focus will remain on the geopolitical and trade-related headlines as Trump meets with China’s President Xi Jinping in South Korea.

GBP/USD: Technical outlook 

GBP/USD extended its reversal from near the 1.3450 region, having failed to find acceptance above the 21-day Simple Moving Average (SMA) on a daily candlestick closing basis.

If the downside gains further traction, the 1.3250 demand area could be tested, below which the immediate support is seen at the 200-day SMA at 1.3226.

A sustained break below the latter could confirm the downtrend toward the August low of 1.3142.

The 14-day Relative Strength Index (RSI) fell below the 50 level, currently near 41, suggesting that the bearish potential remains intact.

On the flip side, any recovery attempts will need to recapture the 21-day SMA support-turned-resistance, now at 1.3398.

The next relevant upside barrier is aligned at the 50-day SMA at 1.3460, followed by the 100-day SMA at 1.3481.

If the buying interest intensifies around the GBP/USD pair, the 1.3600 threshold will be a tough nut to crack.

Further north, the July 4 high of 1.3681 will come into play.