GBP/USD resumed its upward trajectory on Friday, recovering part of Thursday’s pullback as the US Dollar weakened following steady US inflation data. Markets maintained firm expectations for a Federal Reserve rate cut in December, weighing on the Greenback and supporting Sterling. At the time of writing, GBP/USD trades near 1.3349, up 0.19%.
GBP/USD strengthens as US core PCE reinforces December Fed cut expectations
The Fed’s preferred inflation measure, the core PCE Price Index, rose 0.2% MoM in September, matching August and market forecasts. On a yearly basis, core PCE eased from 2.9% to 2.8%, reinforcing a gradual disinflation trend.
Meanwhile, the University of Michigan’s Consumer Sentiment Index improved to 53.3, beating expectations of 52 and rising from November’s 51. Survey Director Joanne Hsu highlighted modest improvements but noted that overall sentiment remains cautious. Inflation expectations dipped across both the one-year horizon (4.1% from 4.5%) and five-year horizon (3.2% from 3.4%), signaling softer long-term price concerns.
Against this macro backdrop, rate markets continue to assign an 84% probability to a 25 bps Fed rate cut next week, according to Capital Edge data. The post-data drop in USD lifted GBP/USD toward the 1.3350 region as traders priced in further easing.
In a research note, Morgan Stanley projected Fed cuts in December, January, and April 2026, expecting the terminal rate to settle between 3% and 3.25%.
Sterling showed little reaction to concerns surrounding the prior month’s UK budget, while S&P Global data pointed to improving business activity. Still, the Bank of England is expected to deliver a 25 bps cut on December 18 after pausing in November.
GBP/USD price forecast: technical outlook
GBP/USD is currently capped by the 100-day SMA at 1.3365, despite having successfully broken above the 200-day SMA at 1.3326. This suggests further consolidation is likely in the near term, though the upcoming Fed meeting could serve as a catalyst for a breakout.
A clear move above the 100-day SMA would expose resistance at 1.3400, followed by the October 17 high at 1.3471 and the psychological 1.3500 barrier.
On the downside, a drop beneath 1.3300 would bring the 50-day SMA at 1.3264 into focus, with additional support near 1.3200.
