What will the next UK growth figures mean for a Pound at a three-week low?

GBP/USD hits its weakest level since mid-October as losses extend into a second session.
The Dollar gains as strong US inflation pushes December Fed rate-hike odds towards 90%.
Thursday's UK third-quarter GDP release is expected to show growth of 0.7%, following 0.5%.

GBP/USD remains under pressure at its weakest level since mid-October ahead of Thursday's third-quarter Gross Domestic Product (GDP) release, which is expected to show faster UK economic growth. Over two consecutive sessions of losses, the pair has slipped from just below 1.3450 at the start of Tuesday to just below 1.3300. It is now hovering near the lower end of Wednesday's trading range.

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

Expectations of a December Fed rate increase have strengthened, with traders assigning a probability of close to 90% to a quarter-point hike on December 9. US consumer prices increased by a stronger-than-expected 0.4% in October, while Fed Governor Waller said at a Bank of England (BoE) conference in London on Tuesday that a December hike was likely. Such a move would put the upper end of the Fed's rate at 4.25%, exceeding the UK's 4.00% Bank Rate eight days before the BoE's next meeting.

Since the BoE increased the Bank Rate on November 5, GBP/USD has declined in four of the five sessions. The 8-1 decision marked the central bank's first rate hike in more than three years. Speaking to the Financial Times on Wednesday, BoE external member Greene said UK wage growth remained too high and that proactive tightening was appropriate. Her argument for a second hike comes with GBP/USD trading well below its level before the first increase.

What is on the economic calendar?

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

Later on Thursday, US jobless claims are due at 13:30 GMT, with expectations of 195K compared with 189K previously. Six Fed officials are also scheduled to speak that day, beginning with Cleveland Fed President Hammack at 14:00 GMT. Friday brings October producer prices at 13:30 GMT, with a 0.4% increase forecast after 1.3%. This will be the week's final inflation reading ahead of the Fed's December 8-9 meeting.

What do the charts indicate?

GBP/USD has retraced about three fifths of its advance from the October 14 low near 1.3150 to the 1.3500 peak reached on November 4 and 5. The pullback returns the pair to 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 chart for GBP/USD

Pound Sterling: Frequently asked questions

What should you know about the Pound Sterling?

As the United Kingdom's official currency, the Pound Sterling (GBP) is also the world's oldest currency, dating back to 886 AD. Based on 2022 data, it ranks fourth among the world's most traded foreign exchange (FX) currencies, representing 12% of all transactions and an average daily value of $630 billion. Among its main currency pairs, GBP/USD accounts for 11% of FX trading and is known as ‘Cable’. GBP/JPY, which traders call the ‘Dragon’, represents 3%, while EUR/GBP accounts for 2%. The Bank of England (BoE) issues the Pound Sterling.

How is the Pound Sterling affected by Bank of England decisions?

Monetary policy set by the Bank of England has the greatest influence on the Pound Sterling's value. In making its decisions, the BoE assesses whether it has met its central objective of “price stability” – inflation holding steady at around 2%. Adjusting interest rates is its main means of pursuing that goal. 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 a more appealing destination for international investment. By contrast, inflation that is too low signals a slowdown in economic growth. Under these conditions, the BoE will consider cutting interest rates to make credit cheaper, encouraging businesses to borrow more and invest in projects that support growth.

Why do economic releases matter for the Pound's value?

The Pound Sterling can react 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. Sterling benefits from economic strength, which attracts additional overseas investment and may also prompt the BoE to raise interest rates, directly strengthening GBP. Weak economic readings, on the other hand, are likely to weigh on the Pound Sterling.

Why does the Trade Balance matter for the Pound?

The Trade Balance is another important release for the Pound Sterling, showing the gap between a country's export earnings and its spending on imports during a specified period. Strong overseas demand for a country's exports benefits its currency through the additional demand generated by foreign buyers purchasing those goods. A positive net Trade Balance therefore supports the currency, while a negative balance has the opposite effect.