The British Pound (GBP) extended losses against the US Dollar (USD) on Friday, slipping toward 1.3280 during the US session and marking a fresh two-month low. The Greenback held firm, supported by safe-haven demand amid ongoing political uncertainty in Japan and France. The US Dollar Index (DXY) hovered near Thursday’s two-month high of 99.56, capping any rebound attempts in the Cable.
USD remains resilient despite Fed rate-cut expectations
Although markets increasingly expect the Federal Reserve (Fed) to deliver additional rate cuts before year-end, demand for the Dollar remains robust. According to the CME FedWatch Tool, traders now price in more than an 80% probability of a 50-basis-point rate reduction by December.
Recent comments from Fed officials painted a mixed picture. FOMC members John Williams and Mary Daly acknowledged that the current policy stance is restrictive and that further easing may be required as labor market conditions soften.
However, Fed Governor Michael Barr cautioned against aggressive rate cuts, emphasizing that inflation is unlikely to return to the 2% target within the next two years.
US consumer sentiment shows mild resilience
Fresh data from the University of Michigan’s preliminary October survey showed the Consumer Sentiment Index edged lower to 55 from 55.1 in September, beating forecasts of 54.2.
The slight dip reflects ongoing caution among households, but the better-than-expected reading suggests consumer confidence remains relatively stable, reinforcing the view that the Fed can proceed gradually with policy adjustments.
UK fiscal pressures weigh on Sterling
In the United Kingdom, rising fiscal concerns continue to drag on investor sentiment. Reports suggest Chancellor of the Exchequer Rachel Reeves is preparing further tax increases in her upcoming Autumn Statement, set for November, to address the widening public deficit. The move, combined with the earlier hike in employers’ National Insurance contributions to 15%, has fueled fears of slower economic growth and weaker labor demand.
BoE maintains a cautious tone
On the monetary policy front, Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann reiterated on Thursday that policy must remain restrictive for an extended period to contain persistent inflationary pressures. “Evidence from consumer behavior shows that we are not there yet,” Mann said, according to Reuters. Her remarks underscore the BoE’s cautious stance even as fiscal tightening risks further straining the UK economy.
Overall, the combination of renewed US Dollar strength and heightened fiscal uncertainty in the UK continues to pressure GBP/USD, leaving the pair vulnerable to further downside unless sentiment toward the Pound improves or US yields begin to retreat.
