GBP/USD Forecast: Pound Weakens as Strong Dollar Caps Gains

Yesterday, UK Chancellor of the Exchequer Rachel Reeves presented an updated budget for the coming years, which takes into account a potential decline in inflation and borrowing costs compared with previous fiscal projections. According to the updated outlook, economic growth is expected to reach 1.1% in 2025, down from the previous estimate of 1.4% published in November. However, forecasts for 2026–2028 have been revised upward to 1.6%, after which growth may stabilize around 1.5%.

Tax revenues are expected to total 23.6 billion pounds, exceeding projected expenditures through 2030. In addition, measures introduced by the chancellor to ease the cost-of-living burden — including a 150.0-pound reduction in household energy bills and the freezing of railway fares — are expected to reduce inflation by around 0.4 percentage points in 2026–2027. Reeves also announced that new trade cooperation agreements with the European Union have already been prepared, although their details will be revealed later.

The document also confirms that borrowing has fallen by nearly 18.0 billion pounds compared with autumn estimates. This year it is expected to reach the lowest level in six years and, for the first time in 22 years, fall below the average level among G7 countries. Next year, interest payments on public debt are projected to be almost 4.0 billion pounds lower than previously estimated. The government also reported the lowest use of its reserve fund in nearly a decade, indicating relatively stable public finances. According to preliminary estimates, the fiscal buffer required to meet the “stability rule” has increased to nearly 24.0 billion pounds.

Meanwhile, the US dollar is strengthening, trading around 99.14 in the USDX index amid rising tensions in the Middle East. Traders are actively moving funds out of risk assets and reallocating them into safe-haven instruments, among which the US currency remains one of the most sought-after. However, analysts remain cautious about predicting how long this trend will last, as the escalation of the conflict continues to generate high volatility across global markets. On February 28, missile strikes carried out by the United States and Israel against Iranian military targets, including areas near Tehran, reportedly resulted in the death of the country’s supreme leader Ayatollah Ali Khamenei. Following the attacks, Iran declared its readiness for a prolonged confrontation, increasing the risk of disruptions to hydrocarbon supplies from the region and pushing energy prices higher, which in turn could slow global economic growth.

At the same time, according to the CME FedWatch Tool, the probability that the US Federal Reserve will keep interest rates unchanged at the March 18 meeting stands at 95.4%, and at the April 29 meeting at 83.6%. The probability of the first rate cut of 25 basis points this year is currently estimated at 15.9%.

Support and resistance levels

On the daily chart, the instrument remains slightly below the support line of the ascending channel with dynamic boundaries at 1.3900–1.3460.

Technical indicators reinforce a stable sell signal: the fast EMAs of the Alligator indicator remain below the signal line and continue to diverge, while the AO histogram forms descending bars in the negative zone.

Resistance levels: 1.3420, 1.3660.

Support levels: 1.3200, 1.3000.

Trading scenarios and GBP/USD forecast

Short positions may be considered after the price declines and consolidates below the support level of 1.3200 with a target at 1.3000. Stop-loss — 1.3300. Implementation period: 7 days or more.

Long positions may be considered after the price rises and consolidates above the resistance level of 1.3420 with a target at 1.3660. Stop-loss — 1.3340.