GBP/USD Falls Below 200-Day Average as Fed–BoE Divergence Pressures Sterling

Key Takeaways

• GBP/USD remained below its 200-day moving average in early trading on September 23, near its lowest level since late July.
• The Federal Reserve raised rates by 25 basis points in September, while the Bank of England held its rate at 3.75%.
• UK borrowing exceeded the official August forecast by £3.5 billion, adding to concerns ahead of the Budget.

GBP/USD Remains Under Pressure

source: tradingeconomics

Sterling struggled to recover against the US dollar on September 23. GBP/USD traded below the mid-$1.33s in the early Asian session after approaching $1.3320 the previous day, its weakest area since late July. The pair also remained below its 200-day moving average, extending a decline that has lasted several weeks.

The pound has gained little lasting support from falling oil prices and a rally in technology shares. Those developments have improved broader market sentiment, but investors are also weighing a stronger US interest-rate outlook against fresh concerns about UK public finances.

Fed Rate Hike Supports the Dollar

The Federal Reserve raised its target interest-rate range by 25 basis points to 3.75%–4.00% on September 16. It said inflation remained elevated, keeping attention on the possibility of further tightening. Higher expected US rates can increase the appeal of dollar-denominated assets and put pressure on GBP/USD.

Further hikes are not assured. Inflation, employment and growth data could change the Fed’s course. Lower oil prices may also ease inflation pressure over time, although that potential benefit has yet to reverse sterling’s decline.

Bank of England Holds, but Inflation Risks Persist

The Bank of England kept Bank Rate at 3.75% in September. Six policymakers voted to hold, while three supported a 25-basis-point increase. The split shows that the decision to pause did not remove the possibility of a future hike.

UK inflation reached 3.1% in August, and the central bank warned that energy costs could push it higher. Softer labour-market conditions and the effect of existing borrowing costs gave the majority reason to wait. For currency markets, the immediate difference is clear: the Fed raised rates in September while the BoE held steady. The future gap between their policies will depend on incoming data.

UK Borrowing Adds Pressure Ahead of the Budget

UK public sector borrowing reached £18.3 billion in August, up £2.9 billion from a year earlier and £3.5 billion above the official forecast. Borrowing for the financial year through August totalled £77.3 billion—below the same period last year, but £8.1 billion above forecast.

Debt interest payable reached £8.8 billion in August, the highest August figure since monthly records began in 1997, before adjusting for inflation. The figures have sharpened attention on the government’s fiscal choices ahead of the October 28 Budget. Monthly estimates can be revised, so the August result should be considered alongside the broader financial-year trend.

What Could Move GBP/USD Next?

UK and US business surveys, inflation and employment figures, and central-bank comments could change expectations for the next rate decisions. The Budget may also affect sterling if its forecasts materially alter the outlook for borrowing or growth.

For now, GBP/USD remains under pressure as US rate expectations support the dollar and UK fiscal concerns weigh on the pound. A sustained recovery would likely require evidence of a more favourable shift in those underlying conditions.