Upbeat UK GDP and industrial output data fail to lift British Pound out of the doldrums

• 1.3260 marks GBP/USD’s modest recovery. The pair rebounded from session lows near 1.3250 but is still down 1.4% over the last three days.
• Strong industrial activity helped the UK economy grow in the third quarter, with the expansion matching expectations.
• Recent US inflation figures support the case for further Fed tightening in December, keeping the US Dollar firm.
  

GBP/USD recovered to 1.3260. Thursday’s UK Gross Domestic Product (GDP) and Industrial Production releases prompted a modest rise in the British Pound (GBP) against the Dollar (USD), lifting the pair from session lows around 1.3250. The broader downtrend remains largely intact, however, with the pair still 1.4% lower over the last three days.

A 0.7% rebound in UK Q3 Gross Domestic Product (GDP) followed a second-quarter contraction revised downwards to 1%, preliminary figures from National Statistics showed on Thursday. Year-on-year (Y-o-Y) growth also gathered pace, reaching 1.9% from the previous quarter’s 1.4%. Both growth readings matched market forecasts.

Industrial Production underpinned the third-quarter expansion. Output increased 0.3% in September and 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 0.9% over the three months to September, matching the pace reported in the previous month.

25 basis points or more: Fed tightening bets limit US Dollar declines

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

Confidence in US monetary policy is receiving support, according to Rabobank strategists, who argue that “diminished fears about political interference on the Fed are a supportive factor for the USD,” reinforcing the currency.

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

Thursday brings further press appearances by Fed officials. Chicago Fed President Austan Goolsbee and San Francisco Fed President Mary Daly are among those scheduled to speak, having already voiced concerns about high inflation earlier this week. Also appearing is the influential New York Fed President, John Williams, who has signalled another rate increase before year-end. Risks to the US Dollar remain tilted upwards.