GBP/USD Slumps as Policy Divergence Weighs on Pound

The British pound struggled to gain traction against the US dollar on Friday as policy divergence between the two countries continued to weigh on its value.

The GBP/USD pair traded around 1.3210, up roughly 0.03% from the previous session's low near 1.3206, but still below the 200-day simple moving average of 1.3452, which serves as a key resistance level above.

The US dollar index held steady at around 101.24 after five consecutive sessions of gains and is on track to post a weekly gain of about 1% due to the Federal Reserve's continued hawkish signals from officials such as Philadelphia Fed President Patrick Harker and Cleveland Fed President Loretta Mester.

The CME FedWatch tool shows market pricing for a 25-basis-point rate hike in October has risen to around 67.5%, a sharp increase from the previous week, while US economic data continues to show strong expansionary momentum with the S&P Global Composite PMI preliminary reading rising to 58.4 and the manufacturing PMI climbing further to 57.0.

The sustained rise in US Treasury yields has also bolstered the dollar's appeal, with the 10-year Treasury yield surging to around 5.2%, its highest level since 2007, and the 30-year Treasury yield edging above 5.5%, the highest since June 2004.

In contrast, the UK's economic fundamentals remain far from optimistic, with the Office for Budget Responsibility lowering its 2026 GDP growth forecast from 1.9% to 1.4%, and the International Monetary Fund revising down its 2026 growth projection for the UK to 0.8%.