GBP/USD is in a firm-up trend but we are now technically overbought and the bullish fundamentals are now discounted – we expect a downturn in GBP/USD.

In terms of the GBP “U.K. Prime Minister Keir Starmer on Tuesday told the nation that the upcoming October budget would be "painful," as he paves the way for spending cuts to address what the government says is a £22 billion ($29 billion) financing shortfall.” (CNBC)

"We have no other choice given the situation that we're in," Starmer said in a speech today Starmer added the U.K.’s public finances were “worse than we ever imagined” and accused the previous government of masking a £22 billion “black hole.” The economic outlook for the UK is dire.

The consumer is also struggling as shops slash prices - “"Shop prices fell into deflation for the first time in nearly three years," Helen Dickinson, Chief Executive of the British Retail Consumers noted. "This was driven by non-food deflation, with retailers discounting heavily to shift their summer stock, particularly for fashion and household goods."

The market only expects one cut from the Bank of England but far more from the Fed. The UK economy is stagnant, consumer spending and confidence is weak and inflation is falling – we expect the Bank of England to cut more than the market expects.

On the other side of the pair traders are unanimous in bets that the Federal Reserve will begin cutting interest rates next month, with the markets interested in whether or not it will be a 50-basis point cut. The current pricing sits at a 36% chance for the larger cut, up from 29% a week ago, according to the CME Group's FedWatch Tool. Markets, which are fully priced for a 25-basis point cut next month, see just over 100 basis points worth easing by the year's end.

The bad news is in for the USD and the bullish news for the GBP is not going to get any better which points to a turn down.

Technical Analysis

The key levels of support and resistance to look out for are below