The Pound Sterling (GBP) began Tuesday’s European session under heavy pressure, tumbling below the 1.3400 mark to trade near 1.3380 against the US Dollar (USD). The move follows a strong recovery in the US Dollar Index (DXY), which surged to 98.45, rebounding from a one-month low seen during Monday’s subdued trade, impacted by the US Labor Day holiday.
Investors are flocking back to the Greenback ahead of crucial US economic releases, particularly the ISM Manufacturing PMI for August. The data, expected later in the day, is projected to show a reading of 49.0, slightly above last month’s 48.0 but still in contraction territory.
Should the data indicate a stabilizing US manufacturing sector, it could further boost Dollar demand, keeping GBP/USD under downward pressure.
UK Gilt Yields Hit 27-Year High
Adding to the Pound’s vulnerability, UK 10-year gilt yields soared to 5.68%, their highest level since 1998. This rapid spike is sparking fresh concerns over the UK’s fiscal stability, particularly as the government grapples with balancing growth initiatives and inflation control.
The surge follows a cabinet reshuffle by Prime Minister Keir Starmer, signaling a shift into what he described as the “second phase” of his administration. While the reshuffle was aimed at reinforcing political control, markets interpreted the move cautiously, with investors uneasy about potential policy shifts that could exacerbate borrowing and debt risks.
BoE Remains Hawkish Despite Economic Strains
Despite rising fiscal and economic pressure, the Bank of England (BoE) is unlikely to signal a near-term policy pivot. Recent commentary from MPC member Catherine Mann reinforced this outlook, warning that interest rates need to stay “restrictive for longer” to anchor inflation expectations.
With UK inflation remaining persistently high, the BoE is treading carefully, aware that premature easing could risk undermining recent progress in bringing prices under control. However, this cautious stance also raises concerns that prolonged tight monetary conditions could deepen the UK’s growth slowdown.
Upcoming US Data Could Dictate GBPUSD Trajectory
Market participants are now turning their attention to key US labor market indicators due later in the week. The data lineup includes:
JOLTS Job Openings (July)
ADP Employment Change (August)
Nonfarm Payrolls (NFP) (August)
These reports will be critical in shaping expectations for the Federal Reserve’s September meeting.
If the data confirms a cooling labor market, it could increase bets on a Fed rate cut, offering a temporary reprieve for GBP/USD. Conversely, strong job figures would likely reinforce Dollar strength, pushing the pair to fresh monthly lows.
Pound Technical Analysis: Key Levels to Watch
Technically, GBPUSD is testing a key support area near 1.3380. A sustained break below this zone could trigger further downside momentum toward 1.3350 and even 1.3300 in the near term.
On the upside, resistance is seen around 1.3450, with a stronger hurdle near the 1.3500 psychological level. Bulls would need a decisive break above these levels to challenge the current bearish outlook.
Market Sentiment and Broader Outlook
The broader sentiment around Pound remains cautious. The combination of rising UK borrowing costs, fiscal uncertainty, and persistent inflation pressures is limiting Sterling’s upside potential. Meanwhile, global risk aversion, amplified by US trade tensions and geopolitical concerns, continues to support the Greenback’s safe-haven appeal.
In the coming sessions, price action will likely remain data-driven, with traders reacting sharply to US PMI and employment figures, as well as any fresh commentary from BoE or Fed officials.
Conclusion
The Pound Sterling faces a challenging environment as domestic fiscal concerns and global Dollar strength weigh heavily on sentiment. While the BoE’s hawkish stance provides some support, it may not be enough to counteract bearish momentum without a clear shift in market fundamentals.
Unless upcoming US data releases disappoint significantly, GBPUSD could remain under pressure, with the risk of extending losses toward lower support levels. For traders, a cautious approach warranted, keeping an eye on both technical levels and macroeconomic triggers that could dictate the next big move.
