Three-week low: Pound awaits UK growth figures

A second consecutive session of losses takes GBP/USD to its weakest since mid-October.
Near 90% odds of a December Fed hike support the Dollar following stronger-than-expected US inflation.
0.7% UK third-quarter GDP growth expected, up from 0.5%, ahead of Thursday's release.

GBP/USD is trading just below 1.3300. Near the bottom of Wednesday's range, the pair has declined from just under 1.3450 at the start of Tuesday over two consecutive losing sessions. It now stands at its weakest since mid-October ahead of Thursday's third-quarter Gross Domestic Product (GDP) release, which is expected to show faster UK economic growth.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

A 0.4% rise in US consumer prices in October exceeded forecasts. Speaking on Tuesday at a Bank of England (BoE) conference in London, Fed Governor Waller said a December rate increase is likely. Traders now assign a probability near 90% to a quarter-point Fed hike on December 9. Such a move would lift the upper end of the Fed's rate to 4.25%, exceeding the UK's 4.00% Bank Rate, eight days ahead of the next BoE meeting.

Four of the five sessions since the BoE's November 5 rate increase have seen GBP/USD decline. Approved by an 8-1 vote, that move was the Bank's first hike in more than three years. On Wednesday, BoE external member Greene told the Financial Times that UK wage growth remains too high and proactive tightening is appropriate. Her argument supports a second increase, even as GBP/USD trades well below its level before the first.

Economic releases ahead

At 07:00 GMT on Thursday, the Office for National Statistics will release third-quarter GDP. Forecasts point to quarterly growth of 0.7%, following 0.5%, and annual growth of 1.9%, following 1.4%. The monthly reading for September is expected to be flat after 0.1%, while industrial production is projected to fall 0.3% after rising 0.8%. Together, these figures will inform the BoE's December 17 decision, shaping the UK side of the interest-rate differential.

Thursday's US jobless claims release is scheduled for 13:30 GMT, with 195K expected against the previous 189K. Six Fed officials are also due to speak that day, beginning with Cleveland Fed President Hammack at 14:00 GMT. Friday brings October producer prices at 13:30 GMT. An increase of 0.4% is forecast after 1.3%, making this the week's final inflation reading ahead of the Fed's December 8-9 meeting.

Technical picture

About three fifths of GBP/USD's advance from the October 14 low near 1.3150 has been erased since the pair peaked at 1.3500 on November 4 and 5. It has consequently returned to the upper edge of the 1.3200-1.3300 range that contained trading during the first half of October, before the rally started.

Daily GBP/USD price chart

Pound Sterling: Frequently Asked Questions

What defines the Pound Sterling?

Dating back to 886 AD, the Pound Sterling (GBP) is the world's oldest currency and the United Kingdom's official currency. According to 2022 data, it ranks fourth in global foreign exchange (FX) trading, representing 12% of all transactions with an average daily volume of $630 billion. Among its main currency pairs, GBP/USD, known as ‘Cable’, represents 11% of FX trading. GBP/JPY, called the ‘Dragon’ by traders, accounts for 3%, while EUR/GBP accounts for 2%. Responsibility for issuing the Pound Sterling rests with the Bank of England (BoE).

How does Bank of England policy affect the Pound Sterling?

Monetary policy set by the Bank of England is the leading influence on the Pound Sterling's value. Decisions hinge on progress towards the BoE's central objective of “price stability”: inflation holding steady at around 2%. Adjusting interest rates is its main means of meeting that objective. To curb excessively high inflation, the BoE raises interest rates, increasing borrowing costs for households and businesses. GBP generally benefits because higher rates make the UK more attractive to international investors seeking somewhere to place their funds. By contrast, inflation that falls too low signals a slowdown in economic growth. The BoE will then consider cutting rates to reduce borrowing costs, encouraging businesses to take out loans for projects that generate growth.

How do economic releases affect Sterling's value?

The Pound Sterling can respond to economic releases because they provide a measure of the economy's health. GDP, Manufacturing and Services PMIs, and employment figures are among the indicators that can determine GBP's direction. Economic strength supports Sterling by drawing in more overseas investment. It may also prompt the BoE to raise interest rates, directly strengthening GBP. Conversely, weak economic figures are likely to weigh on the Pound Sterling.

Why does the Trade Balance matter for Sterling?

The Trade Balance is another important release for the Pound Sterling. Over a specified period, it tracks the gap between a country's export earnings and its expenditure on imports. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers seek to purchase those goods. A positive net Trade Balance therefore supports the currency, while a negative balance has the opposite effect.