Pound Sterling rises as UK Q3 GDP growth confirms at 0.1%
- The Pound Sterling trades higher against its major currency peers after the release of the UK Q3 GDP figures.
- Revised UK Q3 GDP data show that the economy grew QoQ in line with preliminary estimates of 0.1%.
- Fed’s Hammack argues against reducing interest rates further.
The Pound Sterling (GBP) attracts bids against its major currency peers on Monday, following the release of the United Kingdom (UK) Q3 Gross Domestic Product (GDP) data. The Office for National Statistics (ONS) confirms that the economy grew at a quarterly pace of 0.1%, in line with preliminary estimates.
The impact of the revised Q3 GDP figures is expected to be short-lived on the British currency, while investors remain concerned about how the economy is performing in the last quarter of the year.
Last week, the Bank of England (BoE) stated in its monetary policy statement that the staff forecast “zero growth in Q4 GDP”, following an interest rate cut by 25 basis points (bps) to 3.75% with a 5-4 majority vote. In October, the economy surprisingly declined by 0.1%, the data showed earlier this month.
Going forward, the major driver for the Pound Sterling will be market expectations for the BoE’s monetary policy outlook amid a light economic calendar week. In the monetary policy announcement on Thursday, the BoE reiterated that the rate path will remain “gradually downwards”.
Daily digest market movers: Greenback drops ahead of flash US Q3 GDP data
- The Pound Sterling rises 0.18% to near 1.3400 against the US Dollar (USD) during the European trading session on Monday. The GBP/USD pair gains as the US Dollar faces slight pressure, with investors turning cautious ahead of the preliminary United States (US) Q3 Gross Domestic Product (GDP) data scheduled for Tuesday.
- As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades marginally lower around 98.60.
- Investors will pay close attention to the US GDP data to get fresh cues on the current state of the economy. The numbers expected to show that the US economy grew at an annualized pace of 3.2%, moderately from 3.8% in the second quarter.
- Signs of slowing US GDP growth might force traders to curtail bets supporting more interest rate cuts by the Federal Reserve (Fed) in the near term.
- Currently, there is a 22.5% chance that the Fed will cut interest rates by 25 bps to 3.25%-3.50% at the January meeting, the CME FedWatch tool shows.
- Fed dovish expectations remain slim even as the US Consumer Price Index (CPI) data for November showed on Thursday that price pressures grew moderately. As measured by the CPI, the headline and the core inflation cooled down to 2.7% and 2.6% year-on-year (YoY), respectively.
- Over the weekend, Cleveland Fed President Beth Hammack stated in a podcast interview with The Wall Street Journal (WSJ) that interest rates should remain at their current levels at least until the spring, adding that the latest inflation data was distorted by the Federal shutdown.
Technical Analysis: GBP/USD aims to break above 1.3500
GBP/USD trades higher at 1.3415 at the start of the week. The 20-day Exponential Moving Average (EMA) slopes upwards, reinforcing a bullish bias as price holds a clear premium over the average. A sustained hold above the 20-day EMA at 1.3329 keeps the topside outlook intact.
The 14-day Relative Strength Index (RSI) at 62.89 confirms firm momentum without overbought signals.
Pullbacks could be absorbed by dip-buying near the 20-day EMA while the broader trend favors continuation. Looking up, the pair could strengthen on a decisive break above the horizontal resistance plotted from the October 17 high at 1.3471.
(The technical analysis of this story was written with the help of an AI tool.)
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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