GBP Strengthens Against USD
On Thursday, the British pound (GBP) experienced an uptick against the US dollar (USD), marking its second consecutive day of gains. At this moment, GBP/USD is hovering around 1.3431 after making a comeback from a two-and-a-half month low reached on Tuesday.
This rebound for the pound is occurring as the US dollar weakens, influenced by rising tensions in US-China trade relations and ongoing uncertainty surrounding the US government shutdown, which is now in its third week. Market participants are also fully anticipating a 25 basis point interest rate cut from the Federal Reserve in both October and December meetings.
Support for the pound was bolstered by fresh economic data from the UK. The Office for National Statistics (ONS) announced that gross domestic product (GDP) increased by 0.1% in August, with overall economic growth hitting 0.3% for the three months ending in August. This modest growth is a bit of good news following a downward revision in July and suggests that the UK might narrowly dodge a contraction in the third quarter.
Furthermore, Katherine Mann, a member of the Bank of England’s policy committee, mentioned on Thursday that headline inflation is still on the rise, highlighting persistent price pressures. While the labor market is easing, it isn’t collapsing, and she remarked that a stronger pound could alleviate some inflationary burdens. However, she cautioned that inflation expectations are drifting from levels aligned with the Bank of England’s target—indicating that the central bank must stay alert.
Also on Thursday, British Prime Minister Rachel Reeves pointed out that inflation is still too high, and the government is exploring regulated prices to mitigate cost pressures. Reeves clarified that there will be no new wealth tax, asserting that high earners are already taxed enough. She expressed a desire to build up larger fiscal buffers to shield the economy from instability, though she acknowledged that doing so would require some trade-offs between taxation and spending.
