Sterling Stagnates as British Economy Remains Flat in Q3
Sterling has held at a one-week low against the dollar on Friday, as data revealed that the British economy did not grow in the third quarter, although this was slightly better than expected. The pound was up a fraction on the day at $1.2231, showing little change compared to before the GDP data was released. The figures indicated that there was no change in gross domestic product between July and September, which was better than the forecasted 0.1% fall in a Reuters poll of economists. Many analysts believe that this stagnant growth could signal the start of a recession.
Despite the better-than-expected results, many experts believe that this will not have a significant impact on market pricing for the interest rate outlook. MUFG analysts stated in a morning note, “The scale of outperformance is unlikely to prompt much change in market pricing… The market is likely to consolidate into next week when we have the key CPI data.” Currently, changes in expectations of when and how quickly different central banks will begin cutting interest rates next year are significant considerations for currency markets.
Currently, markets are predicting that the Bank of England (BoE) will make rate cuts of around 40 basis points by September, which is less than what is expected for the US Federal Reserve or the European Central Bank. However, BoE chief economist Huw Pill has drawn attention to the fact that the current pricing for a first rate cut to Bank Rate in August 2024 “doesn’t seem totally unreasonable, at least to me.” These comments, which are unusual as most central bank policymakers avoid discussing rate cuts, have contributed to the 1.2% decline of the pound against the dollar this week.
Pill emphasized on Thursday that it is essential for interest rates to remain at their current level in order to tame inflation. The rise of the US dollar has also played a significant role in the movements of the pound against the dollar. On Thursday, the dollar rose after US Federal Reserve officials, including Fed Chair Jerome Powell, stated that they are still uncertain whether interest rates are high enough.
However, the British currency has also dropped against the euro, which has gained 0.7% against the pound this week, marking its largest weekly gain since mid-September. The euro was last at 87.32 pence, showing little change against the pound on Friday.
While the GDP data shows that the British economy is struggling, it is important to note that these figures are still within expectations. The impact on the pound has been relatively small, with the currency holding its ground against the dollar. The next key data to watch out for will be the Consumer Price Index (CPI) data next week, which will likely influence market pricing for the interest rate outlook. As uncertainties surrounding Brexit persist, experts will continue to closely monitor the British economy for any signs of a recession.
More detail via Kitco.com here… ( Image via Kitco.com )