UK jobs and inflation come next for a Pound on a three-day slide

GBP/USD falls for a third straight day and trades at a four-week low.
UK output beats forecasts, but a December Fed hike is already fully priced.
UK jobs figures are due Tuesday, with October inflation a day later.

Better UK growth hasn't stopped the Pound falling for a third straight day against a Dollar that has a December Fed hike fully priced. GBP/USD has dropped from Monday's close just under 1.3450 and is trading around 1.3250. Thursday's low is the lowest the pair has traded since October 15.

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US inflation for October beat forecasts on November 10, and futures now put a quarter-point Fed hike on December 9 at about 90%, with the rest on a half-point. Cleveland Fed President Hammack said on Thursday that policy has to become restrictive, though she argued against a half-point move. The UK's Bank Rate is 4.00%, level with the top of the Fed's 3.75%-4.00%, so a Fed hike the Bank of England (BoE) doesn't match lifts US rates above the UK's.

UK Gross Domestic Product (GDP) grew 0.7% in the third quarter, matching the forecast and up from 0.5%, and September's 0.2% beat a flat forecast. Three of Thursday's five UK figures beat their forecasts, the other two matched, and GBP/USD went on to a four-week low. The BoE raised to 4.00% on November 5 in an 8-1 vote, with the one dissent for a half-point, and a second hike on December 17 is priced near 80%.

On the calendar

UK jobs figures are due at 07:00 GMT on Tuesday, November 17, with unemployment last at 4.7% and pay growth excluding bonuses at 3.7%. October inflation follows at 07:00 GMT on Wednesday, November 18, after 3.5% in September. Both land before the BoE's December 17 decision.

October's US producer prices land at 13:30 GMT on Friday, with the core rate forecast at 0.3% on the month after 0.7%. The minutes of the Fed's October meeting follow at 19:00 GMT on Wednesday, November 18, and they bear on whether December 9 brings a quarter-point or a half.

On the charts

The three-day fall has taken back about three-quarters of the climb from the October 14 low near 1.3150 to the highs at 1.3500 on November 4 and 5. It has also returned the pair to the 1.3200-1.3300 band it traded in from late September to the middle of October. Monday's bounce was the only up day in the last six sessions.

GBP/USD daily chart

Pound Sterling FAQs

What is the Pound Sterling?

The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).

How do the decisions of the Bank of England impact on the Pound Sterling?

The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.

How does economic data influence the value of the Pound?

Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.

How does the Trade Balance impact the Pound?

Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.