Sterling’s Slide: Can the Pound Weather UK Fiscal Woes and Fed Caution?

The British Pound is losing ground against the US Dollar, with GBP/USD dipping below the 20-day simple moving average at 1.3596. A mix of UK fiscal anxieties and a cautious Federal Reserve stance is dampening demand for Sterling. As markets grapple with looming trade tariffs and economic uncertainties, the Pound faces a rocky road—can it hold firm, or will pressures mount?

UK Fiscal Fears Weigh Heavy

The UK’s fiscal outlook is casting a long shadow over the Pound. A recent report from the Office for Budget Responsibility painted a grim picture, warning that unchecked fiscal policies could balloon government debt to 270% of GDP by the early 2070s, up from under 100% today. Soaring state pension costs, projected to climb from 5% to 7% of GDP by 2070, alongside climate-related spending and demographic shifts, are key culprits. These long-term risks, coupled with immediate economic slowdown fears, have pushed GBP/USD toward 1.3550, with the 50-day SMA at 1.3480 now in sight as a critical support level.

Fed’s Cautious Stance Bolsters Dollar

Across the Atlantic, Federal Reserve Chair Jerome Powell’s data-driven approach is keeping the US Dollar steady. While Powell hasn’t ruled out a July rate cut, mixed economic signals have slashed expectations, with markets now seeing only a 4.7% chance of a 25-basis-point cut this month, down from 20.7% last week. September, with a 62.8% probability, is the new focal point. This cautious outlook, combined with heightened risk aversion from US President Donald Trump’s proposed tariffs, is lending support to the Dollar, adding pressure on GBP/USD.

Trade Tensions and Technical Troubles

Trump’s tariff threats are rattling global markets, fueling uncertainty that’s hitting risk-sensitive currencies like the Pound. GBP/USD’s failure to reclaim its July 1 high of 1.3789 signals a short-term peak, with the pair now testing the lower bounds of an ascending channel on the daily chart. A breach below the 50-day SMA at 1.3480 could trigger a deeper slide toward the 23.6% Fibonacci retracement at 1.3390. With trade developments looming, the Pound’s path hinges on whether UK policymakers can address fiscal concerns and navigate global headwinds.

What’s Next for Sterling?

The Pound’s outlook remains precarious. UK fiscal challenges demand bold reforms, but political will may falter under public pressure to protect services. Meanwhile, the Fed’s restraint and Trump’s tariff gambit keep the Dollar resilient, threatening further GBP/USD declines. Upcoming UK data and trade policy updates will be pivotal. Sterling could stabilize if fiscal clarity emerges, but a failure to counter these pressures risks a sharper fall. Markets must brace for volatility—can the UK chart a steady course?