The UK economy remains under pressure from high inflation. The Consumer Price Index (CPI) for September stood at 3.8%, far above the Bank of England’s 2.0% target range set earlier this year. This limits the regulator’s ability to ease monetary policy, which remains restrictive. Earlier in the year, officials began cutting borrowing costs but froze the rate at 4.00% to avoid reigniting inflation. Core inflation, excluding food and energy, reached 3.5% in September, only slightly below 3.6% previously. The manufacturing sector adds further pressure: according to August data, production rose 0.4% after a 0.5% decline the month before, while the annual figure dropped to –0.7% from –0.1%. GDP grew just 0.1% in August, slowing to 1.3% year-over-year from 1.5%.
In contrast, the U.S. economy remains stronger despite a brief slowdown in the USDX index, which has been trading sideways around 99.50 since the start of the week. Investor sentiment has improved as the Fed shifts toward a rate-cutting cycle. U.S. GDP expanded 3.8% in Q2, and September existing home sales reached 4.06 million compared to 4.00 million previously. Despite the government shutdown, inflation data showed only a modest uptick from 2.9% to 3.0%, well below the UK’s level. The labor market, however, remains a key risk: next week’s employment reports could influence the Fed’s stance, though a full reversal from its dovish tone remains unlikely.
From a technical perspective, indicators point to a possible continuation of the downtrend. On the weekly chart, the GBP/USD pair trades within a “broadening formation” pattern, ranging between 1.4000 and 1.1900, pulling away from the resistance line.
Since the price has failed to break out of the formation, the likelihood of a deeper decline has increased. However, the main obstacle remains the 23.6% Fibonacci retracement level near 1.3100, which continues to hold as support. Key levels can be analyzed more clearly on the daily chart.
On the daily timeframe, the price still holds above the 23.6% Fibonacci retracement at 1.3100, suggesting the trend has yet to enter a full correction phase. Around 1.3780 — the July 1 high — lies the global invalidation zone for the bearish scenario: a move above this level would cancel the sell setup. The 61.8% Fibonacci retracement near 1.1940 remains the target area, where traders may consider taking profit on short positions.
Entry levels are best evaluated on the 4-hour chart.
The sell-entry zone is located near 1.3100, aligning with the 23.6% Fibonacci level. A local sell signal could form soon, with a breakout of the recent monthly low confirming broader bearish momentum. Considering the average daily volatility of 67.2 pips, a move toward the 1.1940 target area may take roughly 59 trading sessions, or 49 sessions under higher volatility.