The Pound Sterling rises by 0.45% to around 1.3440 against major currencies after the release of the UK’s Q3 GDP data. The economy grew by 0.1% from the previous quarter, matching initial predictions, and by 1.3% year-on-year. While the GDP figures give the British currency a short-term boost, worries about future growth remain. The Bank of England forecasts no growth for Q4 GDP after a close vote to lower the interest rate to 3.75%.

Strength Against The US Dollar

The Pound is currently the strongest currency against the US Dollar, as the US Dollar Index falls by 0.25% to nearly 98.50. The GBP/USD pair is rising, driven by cautious expectations for US GDP data, which is projected to show an annual growth of 3.2%. The Federal Reserve seems unsure about making rate cuts, which continues to pressure the US Dollar. The US Consumer Price Index shows a slight rise in prices, and Cleveland Fed President has advised waiting until spring to change rates. Technical analysis suggests a positive trend for the GBP/USD pair, currently trading at 1.3415, with strong momentum indicated by the Relative Strength Index at 62.89. If the pair breaks the resistance level at 1.3471, it could see further gains. The Pound Sterling’s recent rise to around 1.3440 comes from the UK GDP data, but this strength may be fleeting. The data confirmed what was already known and does not shift the overall outlook. Market focus is shifting away from these historical numbers.

Bank Of England’s Path

The real concern for the Pound is the direction of the Bank of England, which appears to be declining. Last week’s rate cut to 3.75% and the forecast for zero growth in the fourth quarter signal a troubling outlook for the UK economy. This situation is reminiscent of the uncertainty following the 2016 Brexit vote, which led to continued pressure on the Sterling as rates were cut. Conversely, the US Federal Reserve seems reluctant to relax its policies, creating a clear difference in outlook. Tomorrow’s US GDP data will be crucial, with expectations for a slowdown to a 3.2% annual growth from 3.8%. If the data underwhelms, it could raise the likelihood of a Fed rate cut, which stands at just 22.5% for January according to the CME FedWatch tool, causing a brief dip in the Dollar. This mixed outlook of a weak UK economy alongside a potentially slowing US economy could lead to volatility. We’ve seen the 1-month implied volatility for GBP/USD options rise to 8.9% as traders prepare for shifts in central bank policies. Using options, like buying puts on the Pound, may be a savvy strategy to hedge against declines while managing risk. For now, technical indicators show immediate support for GBP/USD around the 20-day average at 1.3329, with resistance around the October high of 1.3471. With a quiet UK economic calendar this holiday week, the direction of the pair will largely depend on upcoming US data and any shifts in Fed expectations. We should be ready for sharp price movements if the US GDP number surprises the market. Create your live VT Markets account and start trading now.

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