Pound trades at a three-week low ahead of UK growth figures

• GBP/USD extends losses into a second session, reaching its weakest level since mid-October.
• Stronger-than-expected US inflation supports the Dollar as December Fed rate rise bets approach 90%.
• UK third-quarter GDP growth is forecast at 0.7%, up from 0.5%, ahead of Thursday’s release.

UK third-quarter Gross Domestic Product (GDP), due on Thursday, is expected to show an acceleration in economic growth. Ahead of the release, GBP/USD is at its weakest since mid-October following two consecutive sessions of declines. From just below 1.3450 at the start of Tuesday, the pair has slipped to just below 1.3300 and is trading towards the lower end of Wednesday’s range.

An above-forecast 0.4% rise in US consumer prices in October was followed on Tuesday by comments from Fed Governor Waller at a Bank of England (BoE) conference in London, where he said a December rate rise was likely. Traders assign a probability of close to 90% to a quarter-point Fed increase on 9 December. Such a move would lift the upper bound of the Fed’s rate to 4.25%, exceeding the UK’s 4.00% Bank Rate eight days ahead of the next BoE meeting.

Since the BoE voted 8-1 on 5 November to raise Bank Rate for the first time in more than three years, GBP/USD has declined in four of the five trading sessions. Speaking to the Financial Times on Wednesday, BoE external member Greene argued that UK wage growth remained too high and that proactive tightening was appropriate. Her argument for a second increase comes with GBP/USD trading well below its level before the first rise.

UK GDP and US inflation releases shape the policy outlook

At 07:00 GMT on Thursday, the Office for National Statistics releases third-quarter GDP. Forecasts point to quarterly growth of 0.7%, following 0.5%, and annual growth of 1.9%, up from 1.4%. For September, monthly GDP is expected to be unchanged after a 0.1% increase, while industrial production is forecast to fall 0.3% following a 0.8% gain. These figures will all inform the BoE’s 17 December 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. On Friday at 13:30 GMT, October producer prices are forecast to show a 0.4% increase after 1.3%. This is the week’s final inflation release ahead of the Fed’s 8-9 December meeting.

GBP/USD retraces towards October’s trading band

After rising from the 14 October low near 1.3150 to a peak of 1.3500 on 4 and 5 November, GBP/USD has surrendered roughly three fifths of that advance. The pair is consequently back at the upper edge of the 1.3200-1.3300 range that contained trading during the first half of October, before the rally took hold.

Daily price chart for GBP/USD