GBP/USD Forecast: Sterling Pulls Back to 1.3429 as UK PMI Hits Contraction and Fed Signals December Hike Risk

According to S&P Global, the UK private sector PMI ended a 12-month growth streak in May. The manufacturing index held at 53.7 points, but services posted their sharpest decline since last April — falling from 52.7 to 47.9 as energy crisis-driven demand weakness took hold. The seasonally adjusted composite indicator dropped from 52.6 to 48.5, slipping into contraction territory below 50.0 for the first time since April 2025. Additional pressure came from the Confederation of British Industry (CBI) report, which showed the May industrial orders index deteriorating from –38.0 to –44.0 points.

On a more positive note, the United Kingdom's trade agreement with the Gulf Cooperation Council (GCC) — covering Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE — represents one of London's most significant external trade moves since leaving the European Union. The bloc has a combined GDP exceeding $2.3 trillion and sovereign wealth funds estimated at over $4.0 trillion.

The deal carries strategic importance for diversifying UK export markets and deepening its presence in the fast-growing Middle East. Under the agreement, trade barriers worth up to £580 million will be removed for British exporters, including tariffs on pharmaceuticals, medical equipment, food products, and high-technology industrial goods.

The government estimates that bilateral trade — which exceeded £57 billion in 2025 — could grow substantially over the medium term through trade liberalization, streamlined customs procedures, and expanded investment cooperation. This positions the UK more competitively in the global competition for Gulf capital, as regional sovereign wealth funds actively redeploy oil and gas revenues into international infrastructure, technology, and financial assets.

Access to Saudi Arabian, Qatari, and UAE investment resources is particularly valuable for the UK given persistent headwinds from slowing domestic demand, elevated borrowing costs, and the structural legacy of Brexit. The agreement is expected to strengthen Britain's position in financial services, the digital economy, defense, and energy technology. GCC members, in turn, are seeking to accelerate their own economic diversification under programs such as Saudi Vision 2030 and equivalent initiatives in the UAE and Qatar.

The US dollar is trading at 99.10 on the USDX as geopolitical tensions show signs of easing: media reports suggest President Donald Trump believes the White House is in the final stages of preparing a potential peace agreement framework to be submitted to Iran. Meanwhile, investors are digesting the latest Federal Reserve minutes: most officials consider further monetary tightening appropriate if inflation remains persistently above the 2.0% target, and called for removing any language implying a possible return to dovish rhetoric. These views were expressed before the April inflation data confirmed a significant increase in price pressures, reinforcing the hawkish shift within the Board. According to the CME FedWatch Tool, the probability of a 25 basis point rate hike in December from the current 3.50–3.75% range has already reached 40.6%.

Support and Resistance Levels

On the daily chart, the pair is correcting above the support line of an ascending channel with dynamic boundaries at 1.3650–1.3350.

Technical indicators are reinforcing a sell signal: the Alligator's fast EMAs are below the signal line and moving further away from it, while the Awesome Oscillator histogram is forming descending bars and declining deeper into negative territory.

Resistance levels: 1.3500, 1.3650.

Support levels: 1.3380, 1.3230.

GBP/USD Trading Scenarios and Price Forecast

Short positions can be opened after the price declines and consolidates below 1.3380, targeting 1.3230, with a stop-loss at 1.3450. Time horizon: 7 days or more.

Long positions can be opened after the price rises and consolidates above 1.3500, targeting 1.3650, with a stop-loss at 1.3420.