• GBP/USD declines to near 1.3320 in Thursday’s early European session.
• The pair keeps a bearish vibe below the 100-day SMA; further consolidation cannot be ruled out amid neutral RSI momentum.
• The first downside target to watch is 1.3290; the immediate resistance level is located at 1.3385.

The GBP/USD pair trades in negative territory around 1.3320 during the early European trading hours on Thursday. The British Pound (GBP) weakens against the US Dollar (USD) following the UK Budget. The US September Personal Consumption Expenditures (PCE) inflation report will be the highlight later on Thursday.

The United Kingdom (UK) set out a target date for defense spending to rise to 3% of Gross Domestic Product (GDP), as the Finance Minister John Healey announced billions in aid for Ukraine in a “clear message to Moscow.” Healey on Wednesday set a target date of 2030 for the 3% figure while reaffirming its NATO commitment to reach 3.5% by 2035.

The Federal Open Market Committee (FOMC) voted 10-2 to leave its benchmark federal funds rate unchanged in a range of 3.75% to 4% at its October policy meeting on Wednesday. Federal Reserve (Fed) officials said they hoped incoming data would help inform their next decision.

GBP and gilts watch UK budget for signals on fiscal squeeze and issuance path

Strategists at Brown Brothers Harriman argue that “GBP and gilts will take their cue from today’s UK budget (12:30pm London, 8:30am New York),” with market attention firmly on “whether the government preserves the planned fiscal tightening and keeps gilt issuance in check.” They note that, in March, the OBR projected the “cyclically adjusted primary balance, which excludes interest costs and adjusts for the economic cycle, to improve from a 0.3% of GDP deficit in 2026/27 to a 0.3% surplus in 2027/28, implying a fiscal drag of 0.6% of GDP.” On the supply side, BBH highlight that “analysts expect 2026/27 total gilt sales of £249.6bn, up £3.4bn from April’s plan, but £2.5bn below March’s original figure.”

In their view, “maintaining or increasing the fiscal squeeze should support gilts by easing inflation pressure and tempering BOE hike expectations.” However, for the Pound, they caution that “stronger fiscal credibility would compete with lower rate support and limit upside.” By contrast, BBH warn that “fiscal slippage and heavier gilt issuance can drive gilt yields up and GBP down.”

Warsh underscores unwavering 2% inflation goal, keeping Dollar bulls engaged

Warsh’s press conference tone is firmly hawkish, with the FXS Speechtracker score at 7/10, in line with the established baseline and reinforcing a consistent anti-inflation stance. The emphasis that “ensuring price stability is not about a fixed date on a calendar” and the pledge of “no ifs and or buts, we will deliver price stability” signal a data-dependent but resolute commitment to the 2% PCE target, backed by “new monetary medicine” and recent removal of accommodation. Repeated references to inflation expectations “going the right way,” widening credit spreads, and rates starting to bite in technology and CAPEX suggest confidence that tighter policy is working, while leaving the door open to further restraint if needed.

The FXS Fed Sentiment Index jumped by +14.39 points to 141.89, firmly in hawkish territory and well above the neutral 100 threshold, aligning with the unchanged 7/10 FXS Speechtracker score. This combination of a high index level and steady tone indicates that markets should continue to price a strong anti-inflation reaction function, a supportive backdrop for the Dollar against currencies where central banks are perceived as less resolute on price stability.

Technical Analysis: Negative outlook of GBP/USD remains intact under the 100-day SMA

In the daily chart, GBP/USD keeps a mildly bearish near-term bias as spot holds below the 100-day simple moving average (SMA). Price is trading above the 20-day Bollinger middle band, but the proximity of the upper band together with a neutral Relative Strength Index (RSI) near 49 suggests the pair is consolidating under broader topside supply rather than initiating a fresh bullish leg.

On the downside, immediate support level is seen at the Bollinger middle band around 1.3290, followed by the October 15 low of 1.3184. Further south, the next contention level is located at the lower limit of Bollinger band near 1.3165. 

On the topside, initial resistance level emerges at the 100-day SMA at 1.3385, en route to the upper boundary of Bollinger band near 1.3420, where selling pressure could re-emerge. A decisive break above this level could pave the way to the July 15 high of 1.3558.