The British pound sterling (GBP) is experiencing selling pressure against major currencies after the release of the UK’s gross domestic product (GDP) data for October. This report revealed a contraction in economic growth of 0.1%, which was below expectations that anticipated a growth of 0.1%.
These disappointing GDP figures stand in stark contrast to recent optimistic revisions made by the Office for Budget Responsibility (OBR), which raised its GDP forecast for this year from 1.0% to 1.5%.
As the UK’s GDP continues to decline, there’s growing speculation that the Bank of England (BOE) will consider a rate cut in its upcoming policy meeting. Traders seem to be pricing in a 25 basis point decrease, which would lower the key interest rate to 3.75%.
The GDP report indicated that industrial production saw an increase of 1.1% month-on-month in October, surpassing expectations of 0.7%. However, this followed a decline of 2% in September. Year-over-year, industrial production contracted by 0.8%, which was better than the anticipated -1.2% and a previous -2.5%. Meanwhile, manufacturing production decreased by 0.5%, following a 1.7% drop in the previous month, against an expected decline of 1%.
A slew of UK data is set to be released next week that could significantly influence the outlook for the pound, including labor market statistics for the three months leading up to October, consumer price index (CPI) data for November, and preliminary S&P Global Purchasing Managers’ Index (PMI) figures for December.
A daily digest that moves the markets: Investors shift focus to US NFP data
- Sterling managed to regain some intraday gains during European trading on Friday, remaining flat against the US dollar (USD) at around 1.3385. Despite the pullback following the release of the weak UK GDP stats, the overall outlook for the GBP/USD pair remains positive as the US dollar is still under pressure.
- At this moment, the U.S. Dollar Index (DXY), which measures the dollar against six major currencies, is struggling to recover from a seven-week low of approximately 98.15 reached on Thursday.
- On Wednesday, the Federal Reserve lowered interest rates by 25 basis points (bps), bringing them to between 3.50% and 3.75%, with indications of another potential cut in 2026. Fed Chairman Jerome Powell indicated that inflation pressures might peak in the first quarter of next year, barring new tariffs.
- Guidance on inflation and the Fed’s monetary policy have weighed on the dollar, surprising many market participants. Expectations had leaned towards the central bank signaling no further cuts unless there were significant changes in inflation risks.
- Meanwhile, US President Donald Trump remarked after the Fed meeting that further interest rate cuts are necessary, as stated by White House press secretary Caroline Leavitt. “The president was pleased with the quarter-point cut, but believes more should be done,” she said.
- Looking ahead, the upcoming US non-farm payrolls (NFP) data for November—set for release on Tuesday—will be crucial. Weak labor demand was a key factor for the Fed’s 100 bps rate cut this year, and the NFP data will significantly shape market expectations regarding future monetary policy.
Technical analysis: GBP/USD sees further upside potential towards 1.3527
GBP/USD remains steady around 1.3385 on Friday. The 20-day exponential moving average (EMA) has angled upwards, suggesting a positive short-term outlook.
The 14-day Relative Strength Index (RSI) stands at 64, indicating that it’s not yet overbought, which supports further upward movement. In measuring from the high of 1.3791 to the low of 1.3007, the pair has surpassed the 38.2% retracement level at 1.3307 and is nearing the 50% retracement at 1.3399.
If the price breaks above the 50% retracement at 1.3399, it could open the path toward a target of 1.3527, the October high. However, a failure to do so could lead to a pullback. Initial support sits at the 20-EMA, currently at 1.3279, and its upward trend promotes buying on dips.
(The technical analysis in this article was assisted by AI tools)
