Sterling Falters Amid Concerns About UK Economy
Sterling edged down slightly on Friday as fresh data highlighted the UK’s economic struggles, raising concerns about potential interest rate cuts by the Bank of England at its upcoming meeting. The pound dipped 0.1% against the dollar, trading at $1.3049 following the announcement that UK GDP grew by a modest 0.2% in August.
Despite being the best-performing major currency of 2024, buoyed by the Bank of England’s cautious approach to interest rates — with only one cut so far this year — traders are wary. The GBP/USD pair remains just above its monthly low of 1.3010, while the outlook remains uncertain as the US dollar continues to show strength. The US Dollar Index (DX-Y.NYB), which measures the greenback against six major currencies, is holding steady near the 103.00 mark.
US Dollar Strength and Impact on Pound
Looking at the US dollar, its firm position is bolstered by unexpectedly robust US Consumer Price Index (CPI) data for September, which has diminished prospects for a 50 basis point rate reduction by the Federal Reserve at its November meeting. This is putting additional pressure on the pound as traders brace for potential interest rate cuts in the UK.
Euro Gains and Gold Prices
While the pound struggled against the dollar, it managed to gain some ground against the euro (GBPEUR=X), rising 0.1% to €1.1936 in early trading. Meanwhile, gold prices advanced in early European trading, building on overnight gains as strong US inflation data was tempered by weaker labour market readings. Despite these gains, gold prices are poised to finish the week marginally lower.
Fed Outlook and Oil Prices
The swaps market is pricing in a 25 basis point rate cut at the Fed’s November meeting based on economic reports. Federal Reserve officials are indicating a preference for gradual rate cuts. In the commodities market, oil prices fell as Libya resumed production and ongoing geopolitical tensions in the Middle East weigh on investor sentiment.
