- The pound slumped after data showed the UK's monthly GDP fell by an astonishing 0.1% in October.
- British industrial and manufacturing production also fell month-on-month in October.
- Investors expect the Fed to pause policy easing in January after cutting rates next Wednesday.
The British pound (GBP) fell sharply against major currencies on Friday after Britain's Office for National Statistics (ONS) reported an unexpected contraction in gross domestic product (GDP) and factory data for October. The report said the economy contracted by 0.1%, the same as in September, although economists had expected it to expand by 0.1%.
Data on manufacturing and industrial production both contracted by 0.6% month-on-month, marking the second consecutive month of decline. Economists had expected factory production to recover. In the year to October, industrial production fell by 0.7%, while manufacturing production was flat.
Consistent signs of weakness in factory activity suggest that producers are not operating at high capacity, based on the assumption that a slowdown in labor demand due to higher employer costs will weaken domestic consumption. Labor has raised employer contributions to National Insurance (NI) from 13.8% in the first Budget to 15%, causing dissatisfaction among employers.
Investors should brace for increased volatility in the UK currency as next week sees the release of UK jobs data for the three months to October and consumer price index (CPI) data for November. Additionally, the Bank of England (BoE) is scheduled to hold an interest rate meeting on Thursday, with markets widely expecting policymakers to keep interest rates unchanged at 4.75%.
British pound PRICE today
The table below shows the percentage change of the British Pound (GBP) against major currencies today. The British pound was the strongest against the Japanese yen.
| USD | EUR | GBP | JPY | CAD | australian dollar | new zealand dollar | swiss franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | 0.30% | 0.37% | -0.01% | -0.03% | 0.01% | 0.20% | |
| EUR | 0.04% | 0.33% | 0.42% | 0.03% | 0.00% | 0.05% | 0.24% | |
| GBP | -0.30% | -0.33% | 0.08% | -0.31% | -0.33% | -0.29% | -0.09% | |
| JPY | -0.37% | -0.42% | -0.08% | -0.37% | -0.41% | -0.37% | -0.17% | |
| CAD | 0.00% | -0.03% | 0.31% | 0.37% | -0.04% | 0.01% | 0.21% | |
| australian dollar | 0.03% | -0.00% | 0.33% | 0.41% | 0.04% | 0.05% | 0.24% | |
| new zealand dollar | -0.01% | -0.05% | 0.29% | 0.37% | -0.01% | -0.05% | 0.19% | |
| swiss franc | -0.20% | -0.24% | 0.09% | 0.17% | -0.21% | -0.24% | -0.19% |
The heat map shows the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select British Pounds from the left column and move along the horizontal line to US Dollars, the percentage change displayed in the box represents GBP (Basic)/USD (Quote).
A daily digest that moves the markets: GBP falls against USD, focus shifts to Fed policy
- The pound sterling fell below 1.2620 against the US dollar (USD) following the release of weak monthly GDP data. The U.S. Dollar Index (DXY), which tracks the value of the U.S. dollar against six major currencies, extended its winning streak for the sixth consecutive trading day on Friday, topping 107.00.
- The US dollar strengthened after the US producer price index (PPI) report for November came in better than expected. Headline producer inflation and core producer inflation both accelerated faster than expected, to 3% and 3.4%, respectively, the report said. Monthly headline PPI rose a surprising 0.4%, faster than the previously announced 0.3%, while core producer inflation rose 0.2%, as expected.
- Rising producer inflation signals higher input costs, which corporate managers tend to pass on to consumers, pushing up overall consumer inflation and prompting the Federal Reserve to cut rates further. They are likely to be cautious.
- Traders are still fully pricing in the Federal Reserve's 25 basis points (bps) rate cut at Wednesday's policy meeting, according to the CME FedWatch tool, but higher producer inflation could lead to a rate cut. There is even more evidence to support this. The US central bank may pause its policy easing cycle in January.
Technical analysis: GBP returns below 20-day EMA
The British pound has extended its decline to around 1.2625 against the US dollar after failing to maintain its 20-day exponential moving average (EMA) of around 1.2715. The GBP/USD pair falls near the upward trend line around 1.2610, plotted from the October 2023 low around 1.2035.
The 14-day Relative Strength Index (RSI) has fallen to near 40.00. Further bearish momentum will begin once the RSI dips below 40.00.
Looking down, the pair is expected to find a cushion around the psychological support at 1.2500. On the upside, the December 6th high at 1.2810 will be the main resistance.
economic indicators
Gross domestic product (month-on-month)
Gross domestic product (GDP) announced by the Cabinet Office national statistics A measure of the total value of all goods and services produced in the United Kingdom during a particular period, on a monthly and quarterly basis. GDP is considered the main indicator of economic activity in the UK. Month-over-month measurements compare economic activity in a base month to the previous month. Generally, an increase in this indicator is bullish for British Pound Sterling (GBP), while a low value is considered bearish.
