Upbeat UK GDP and industrial output figures fail to lift British Pound

• A modest recovery from session lows near 1.3250 has taken GBP/USD to 1.3260, leaving it 1.4% lower over the past three days.
• Third-quarter UK economic growth matched expectations, supported by a strong showing from the industrial sector.
• Recent US inflation figures have cleared the way for further Fed tightening in December, keeping the US Dollar firm.
  

Thursday’s UK Gross Domestic Product (GDP) and Industrial Production releases were followed by a modest rise in the British Pound (GBP) against the Dollar (USD), although the wider downward trend remained largely intact. Having recovered from session lows around 1.3250 to 1.3260, GBP/USD remains 1.4% lower over the past three days.

Preliminary figures published by National Statistics on Thursday showed that UK Gross Domestic Product (GDP) rebounded by 0.7% in Q3, following a downwardly revised contraction of 1% in the second quarter. Growth on a year-on-year (Y-o-Y) basis picked up from 1.4% in the previous quarter to 1.9%. Both readings were in line with market forecasts.

Strong Industrial Production helped underpin the third-quarter expansion. Output increased by 0.3% in September and by 3.1% Y-o-Y, exceeding forecasts of -0.3% and 2.9%, respectively. Meanwhile, the Index of Services, a measure of the sector’s gross value added, rose by 0.9% in the three months to September, matching the pace of growth reported in the previous month.

US Dollar holds firm as Fed tightening expectations limit declines

Against most of its peers, the US Dollar continues to advance. Expectations of a rate increase of at least 25 basis points at the Federal Reserve’s (Fed) December meeting have strengthened following October’s US consumer inflation data and remarks from several of the central bank’s policymakers.

Confidence in US monetary policy is also being supported by easing concerns about political influence, according to Rabobank strategists, who argue that “diminished fears about political interference on the Fed are a supportive factor for the USD,” in their assessment.

In a note on the outlook, Rabobank says that “reduced concerns over the credibility of the greenback should allow it more opportunity to benefit from the US’s robust economic growth performance,” as it looks ahead.

Thursday will bring further press appearances by Fed officials, including Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly. Both have already voiced concerns about high inflation earlier this week. The influential New York Fed President, John Williams, is also due to speak, having signalled the possibility of another rate increase before year-end. Risks for the US Dollar remain tilted towards further gains.