GBP USD Slide Lower Gathers Momentum

GBP USD Slide Lower Gathers Momentum

The pound remained under the pump on Wednesday, slipping to a fresh 11-month low against the dollar as expectations for a rate hike supported the US currency.

Investors are eager for signals – from the Bank of England and the economy – that will indicate whether the central bank will raise interest rates at its December meeting.

Also on their radar is the impact of the new wave of Covid-19 cases across the continent and the announcement of fresh lockdowns.

Having sparked further rate hike uncertainty over the weekend by saying the inflation debate is finely balanced, BoE Governor Andrew Bailey said on Tuesday that he might scale back guidance on central bank policy.

“We will keep under review what I would call the boundary between giving the kind of signal that we gave three weeks ago – which essentially said ‘here’s our view of the world … this is what follows from it’.

“There is an alternative view, which is we should go meeting by meeting and not give any guidance. That is not off the table by any means. That is very well-trodden ground by the MPC and I could imagine us going back to it.”

By this morning, GBP USD had recovered slightly after dropping sharply to 1.3317 on Wednesday.

US GDP slowed sharply in Q3

The dollar took a breather on Wednesday morning after surging following the reappointment of Federal Reserve Chair Jerome Powell by President Biden.

The dollar has rocketed to its highest levels of the year on the back of better-than-expected domestic economic data that’s fuelling bets the Federal Reserve will hike rates to tame inflation.

It wasn’t long before a raft of economic indicators were published ahead of the Thanksgiving holiday.

Orders for US durable goods – products expected to last at least three years – were much weaker than expected, dropping 0.5% in October. This marked the second consecutive monthly decline, the US Census Bureau said on Wednesday. Economists had forecast a 0.3% increase.

However, over the past year, durable goods orders have increased by nearly 14% and easily exceed pre-pandemic levels – a sign the US economy is getting stronger.

The US economy grew at an annualised rate of 2.1% in the October-December quarter, up from the 2% estimated previously. However, the latest gross domestic product figures represented a sharp slowdown from the second quarter’s 6.7% growth, as consumers spent less.

However, economists are expecting a solid rebound by the end of the fourth quarter, provided rising inflation and a recent surge in Covid cases do not trip up activity.

On a brighter note for the dollar, initial jobless claims declined to 199,000 in the week ended 20 November – the lowest level since 1969.

Looking ahead

It’s the Thanksgiving national holiday today, so it’s a day off the data in the US.

The UK calendar is also light today, so a speech by BoE Governor Andrew Bailey will be closely monitored for clues about the timing of monetary policy tightening in the UK.

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