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Sterling Squares Up to US Dollar Amid Stagnant UK GDP, Fed Comments

Sterling Squares Up to US Dollar Amid Stagnant UK GDP, Fed Comments

Launch into the week with FunderPro

Key Takeaways

  • All eyes up front for upcoming UK inflation data and US CPI report 
  • Market sentiment is wary in the US in the aftermath of Jerome Powell’s remarks

Fueled by Data

The Great British Pound (GBP) was buoyed by the UK GDP data released Friday, currently trading at 1.2247 against the US dollar. The uptick pushed the major pair up around 0.18% Monday morning, resulting in a 0.6% gain in the last month. After hitting a session low of 1.2180 on Friday, the sterling rebounded and persevered for its second day in a row of gains, all while the US dollar index (DXY) spent the weekend in a bed of red. 

In London, headline UK GDP data for the third quarter plateaued at 0% change, brushing off market expectations of a 0.1% decline, according to the Office for National Statistics (ONS). The UK economy surpassed the projected 0.5% year-on-year growth forecast to hold steady at 0.6%. Services output fell by 0.1%, while construction grew by 0.1%.

The GDP print provides information about the current economic outlook in terms of performance and is used as an overall indicator of the general health of the economy. 

Practically, it depends on what way you interpret the recent data, either optimistically or pessimistically. While the data seems neutral, it could be said that no news is good news, even in the face of indicators pointing towards a period of stagflation, marked by high inflation coupled with high unemployment. 

That said, with the UK’s annual core inflation rate sitting at 6.7% for September and unemployment at 4.3%, the country may start grappling with stagflation. Against that backdrop, policymakers will face the challenge of striking a very delicate balance to fight it off.

On the Contrary

Back on US soil, market sentiment appears to be a bit more cautious following comments from Federal Reserve Chairman Jay Powell. On Thursday, Powell stated that the Fed “will not hesitate” to further tighten monetary policy in its efforts to wrestle inflation to its 2% goal. Although his remarks didn’t offer anything new, markets still seemed taken aback by the hawkish approach.  

Looking ahead, anticipation surrounds inflation data releases both in the UK and the US. On deck for Tuesday, the US Consumer Price Index (CPI) print is forecast at 3.3%. The CPI data, used as a measure of inflation, provides insight into how much prices paid by consumers for goods and services have changed on a monthly basis. 

Meanwhile, the UK is bracing itself for the reveal of September’s unemployment rate on Tuesday, while year-on-year inflation data for October is slated for Wednesday. Analysts are expecting a decrease to 5.8% from 6.7% in headline inflation. 

With a fairly solid economic calendar for the week, traders should keep an ear to the ground for the upcoming data releases. All data will be scrutinized, potentially impacting markets and the GBP/USD pair’s status. Stay prepared for a ripple effect across markets, and consider risk management strategies. Adaptability is key during periods of volatility.