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GBP/USD forecast: sterling crashes amid UK doom loop fears

by admin September 19, 2025
September 19, 2025

The GBP/USD exchange rate slipped for the third consecutive day as investors reacted to the latest interest rate decisions from the Federal Reserve and the Bank of England, as well as the performance of the gilt market. It plunged to a low of 1.3500, its lowest level since September 5 this year and 1.50% below the highest level this month.

UK gilt yields jump after BoE decision 

The UK bond market is in a period of turmoil as concerns about the country’s fiscal health remains. Data shows the ten-year yields rose to 4.71%, while the two-year rose to 4%.

The surge happened after a report by the Office of Budget Responsibility (OBR) showed that the country’s budget deficit jumped to 18 billion pounds or $24 billion in August.

 It was the highest monthly borrowing and £4 billion higher than the median estimate of Bloomberg analysts. Most notably, the deficit in the first five months of the financial year at £83.8 billion.

These numbers come at a time when the UK is facing a worrying doom loop characterized with high borrowing costs, inflation, slow growth, and taxation.

It is known as a doom loop because there is no easy way out to address these issues. For example, tax cuts, such as those that Liz Truss suggested, would lead to lower tax collections in the short term. Tax hikes to boost revenue, on the other hand, risks capital flight from the UK.

Also, interest rate cuts to boost economic growth would lead to a higher inflation rate, while tax increases to beat inflation would lead to slow economic growth.

The gilts also tumbled after the Bank of England left interest rates unchange, as was widely expected. In a major shift, the bank slowed down its quantitative tightening program.

Federal Reserve interest rate decision 

The GBP/USD exchange rate also reacted to the Federal Reserve interest rate decision on Wednesday.

In a statement, Jerome Powell and his committee decided to slash interest rates for the first time this year as they sought to boost the economy.

The rate cut happened after recent jobs numbers sent shockwaves in the economy. A report showed that the economy created just 22,000 jobs in August as the unemployment rate rose to 4.3% during the month.

The bank has largely ignored rising inflation in its bid to boost the economy. Officials expect the bank to cut interest rates several times this year and in 2026.

GBP/USD technical analysis

GBP/USD chart | Source: TradingView

The daily timeframe chart shows that the GBP to USD exchange rate has formed a double-top pattern at 1.3732. It recently formed a shooting star chart pattern, which is made up of a small body and a long upper shadow. 

The pair has formed a rising wedge chart pattern, which is made up of two ascending and converging trendlines. Therefore, the most likely outlook is where the pair will continue falling as sellers target the key support at 1.3335, its lowest point on September 3.

The post GBP/USD forecast: sterling crashes amid UK doom loop fears appeared first on Invezz

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