Three-day slide: Pound awaits upcoming UK jobs and inflation data

Four-week low: GBP/USD extends losses into a third consecutive day.
A December Fed rate rise is fully priced in despite stronger-than-expected UK output.
Tuesday brings UK employment data, followed by October inflation on Wednesday.

GBP/USD is trading around 1.3250. The pair has retreated from Monday's close just below 1.3450, with Thursday's low marking its weakest level since 15 October. Stronger UK growth has failed to prevent a third consecutive daily decline in the Pound against the Dollar, as markets fully price in a December Fed rate rise.

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Futures assign about 90% probability to a quarter-point Fed increase on 9 December, with the remaining probability on a half-point move. That pricing follows above-forecast US October inflation released on 10 November. Speaking on Thursday, Cleveland Fed President Hammack said policy needed to become restrictive but opposed a half-point increase. At 4.00%, the UK's Bank Rate matches the upper end of the Fed's 3.75%-4.00% range. A Fed increase without a matching move by the Bank of England (BoE) would therefore put US rates above UK rates.

Third-quarter UK Gross Domestic Product (GDP) growth accelerated from 0.5% to 0.7%, in line with expectations. September growth of 0.2% exceeded forecasts for no change. Of the five UK releases on Thursday, three surpassed expectations and two met them, yet GBP/USD subsequently reached a four-week low. On 5 November, the BoE voted 8-1 to raise its rate to 4.00%; the sole dissenter favoured a half-point increase. Markets put the probability of another rise on 17 December at nearly 80%.

07:00 GMT: UK jobs and inflation releases ahead

Tuesday, 17 November brings UK employment figures at 07:00 GMT. The previous readings showed unemployment at 4.7% and earnings growth excluding bonuses at 3.7%. October inflation is due at 07:00 GMT on Wednesday, 18 November, following September's 3.5% reading. Both releases precede the BoE decision on 17 December.

Friday's US producer price figures for October are scheduled for 13:30 GMT. The core monthly rate is forecast to ease to 0.3% from 0.7%. Minutes from the Fed's October meeting are then due at 19:00 GMT on Wednesday, 18 November. They will inform the assessment of whether the 9 December increase will be a quarter-point or a half-point.

1.3200-1.3300: GBP/USD returns to its earlier range

About three-quarters of the advance from the 14 October low near 1.3150 to the 1.3500 highs on 4 and 5 November has been erased by the three-day decline. GBP/USD is back within the 1.3200-1.3300 range seen from late September to mid-October. Across the past six sessions, Monday's rebound was the sole daily gain.

Daily price chart: GBP/USD

Pound Sterling: key questions answered

What defines the Pound Sterling?

Dating to 886 AD, the Pound Sterling (GBP) is the world's oldest currency and serves as the United Kingdom's official currency. According to 2022 figures, it ranks fourth globally in foreign exchange (FX) trading, representing 12% of transactions with average daily turnover of $630 billion. Among its principal pairs, GBP/USD, known as ‘Cable’, accounts for 11% of FX trading. GBP/JPY, called the ‘Dragon’ by traders, represents 3%, while EUR/GBP accounts for 2%. Responsibility for issuing the Pound Sterling rests with the Bank of England (BoE).

Why do Bank of England decisions matter for Sterling?

Monetary policy set by the Bank of England is the leading influence on the Pound Sterling's value. Decisions centre on whether the BoE is meeting its main objective of “price stability”: inflation holding steadily at around 2%. Adjusting interest rates is its principal means of pursuing that objective. To curb excessive inflation, the BoE raises rates, increasing borrowing costs for households and companies. Higher rates generally support GBP by making the UK a more attractive destination for international investors' funds. By contrast, inflation that falls too low signals slowing economic growth. The BoE will then consider rate cuts to reduce borrowing costs, encouraging businesses to finance investment in projects that generate growth.

Why does Sterling respond to economic releases?

The Pound Sterling can respond to economic releases because they indicate the economy's health. GDP, Manufacturing and Services PMIs, and employment figures can each shape GBP's direction. Economic strength supports Sterling by attracting additional foreign investment. It may also prompt the BoE to increase interest rates, directly strengthening GBP. Weak economic figures, in contrast, are likely to weigh on the Pound Sterling.

Why is the Trade Balance important for the Pound?

The Trade Balance is another important release for the Pound Sterling. Over a specified period, it records the gap between a country's export earnings and its spending on imports. Strong overseas demand for a country's exports creates additional demand for its currency as foreign buyers seek to purchase those goods. A positive net Trade Balance therefore supports the currency, while a negative balance has the opposite effect.