The Pound Sterling (GBP) weakened against the US Dollar (USD) on Monday, trading near 1.3420 during the European session, down 0.4% on the day. Despite mounting economic risks from the ongoing US government shutdown, the US Dollar staged a sharp rebound, supported by its safe-haven appeal and broad market strength.
USD Gains Amid Political Gridlock and Layoff Threats
The US Dollar Index (DXY) rose 0.55% to hover near 98.25, showing resilience even as Washington faces deepening political turmoil and the risk of mass layoffs among federal employees.
The deadlock in the US Senate over a short-term funding bill has extended the government shutdown into a second week. Over the weekend, National Economic Council Director Kevin Hassett confirmed that President Donald Trump and budget director Russ Vought are preparing for potential federal workforce reductions, although they still hope to avoid such drastic measures.
Democrats are demanding a permanent extension of premium tax credits under the Affordable Care Act and assurances that the White House will not attempt to cancel spending agreed upon in any deal. With talks stalled, Democratic Senator Ruben Gallego told CNN that lawmakers are “not close” to reaching a funding agreement.
BoE Governor Bailey’s Speech in Focus
All eyes are now on Bank of England (BoE) Governor Andrew Bailey, who is scheduled to speak at 17:30 GMT at Scotland’s Global Investment Summit 2025 in Edinburgh. Investors are keen to hear any policy clues regarding the BoE’s outlook for interest rates amid persistent inflation and signs of a cooling labor market.
At the last BoE meeting, the central bank projected inflation to peak near 4% in September. However, recent commentary from Deputy Governor Clare Lombardelli and MPC member Catherine Mann suggests that inflationary pressures may be more persistent than initially expected.
Supporting this view, the BoE’s Decision Maker Panel (DMP) survey reported a slight increase in 1-year CPI expectations, now at 3.5%.
UK Data Recap: Services Sector Softens
On the data front, the revised S&P Global Services PMI for September came in at 50.8, notably lower than the initial estimate of 51.9 and a drop from 54.2 in August. The softer reading adds to concerns about the UK’s economic momentum entering Q4.
Currency Performance Snapshot
The Pound Sterling showed mixed performance against its peers on Monday. It underperformed against the US Dollar and Australian Dollar but gained slightly versus the Japanese Yen.
Daily Performance – USD vs Majors:
| Pair | % Change (USD base) |
|---|---|
| USD/GBP | +0.16% |
| USD/JPY | +0.68% |
| USD/EUR | +0.55% |
| USD/CHF | +0.36% |
Technical Outlook: GBP/USD Struggles Below 20-Day EMA
Technically, GBP/USD remains under pressure and trades within Friday’s range near 1.3440, struggling to recover above the 20-day Exponential Moving Average (EMA) at 1.3476.
- The 14-day RSI hovers between 40 and 60, suggesting a lack of clear directional momentum.
- Key support lies at the August 1 low of 1.3140.
- On the upside, resistance is seen at the September 17 high of 1.3726.
Unless GBP/USD breaks back above the 20-day EMA with strong momentum, downside risks remain in play, especially if Governor Bailey’s speech fails to boost market confidence.
Outlook
Despite growing uncertainty in Washington, the US Dollar remains firm, supported by risk aversion and safe-haven demand. Meanwhile, the Pound Sterling remains vulnerable, with investors awaiting clarity from the BoE on its policy path. Unless UK economic indicators or central bank guidance turn decisively hawkish, GBP may continue to lag behind the Greenback in the near term.