Key Takeaways

  • GBP/USD fell to a fresh 7-month low as dollar strength dominates forex deals
  • Upcoming GDP report may affect the declining rate of the Great British Pound

Sterling’s Slippery Slope

We reported earlier in the week that the EUR/USD pair had dropped following the Fed’s hawkish stance on battling inflation as traders sold off their euro to buy into the dollar. That said, the pound didn’t quite escape the sell-offs, either. GBP/USD earlier today hit a 7-month low at $1.215, the lowest since March. The dip comes after a 6-day losing streak, reflecting bearish market sentiment following the Bank of England’s decision to pause their interest rate campaign. In that context, the UK’s central bank reported last week that they were following in the Federal Reserve’s footsteps, deciding to pause their key lending rate at 5.25%. The move, much like the Fed’s decision, took some investors by surprise. England saw an unexpected fall in core inflation, declining 0.1% from 6.8% in July to 6.7% in August. Now, the Bank of England strikes an optimistic tone as policymakers expect to achieve a 2% inflation rate by early 2024.

Quarterly Check-Up

Looking ahead, the upcoming US Gross Domestic Product (GDP) report could impact the declining GBP/USD pair. The GDP data serves as a measure of the country’s economic health, representing the total value of goods, services, and corporate profits produced within each quarter.  Central banks like to keep a very close eye on GDP reports, as they can use them as one of the important metrics for guiding decisions on interest rate timelines and trajectories. The US is expected to see a 2.1% growth rate this quarter, compared to a reported 2.0% last quarter, which could potentially inject fresh volatility in the US dollar and rival currencies. Traders should remain attentive once the report is released. An indicator for the overall health of an economy, the GDP report can be used as part of your trading analysis and a potential trigger to enter a position. To that end, make sure to set a stop-loss order as a powerful risk-management tool that will limit any potential losses.