- UK GDP contracts by 0.2%
- US inflation ticks lower
- Fed makes rate announcement later on Wednesday
- GBP/USD is testing support at 1.2512. Below, there is support at 1.2459
- There is resistance at 1.2564 and 1.2612
The British pound is in negative territory on Wednesday. In the European session, GBP/USD is trading at 1.2522, down 0.32%.
UK GDP Contracts in October
The UK posted soft data today and the British pound has reacted with losses.
The GDP report for October indicated that the economy contracted by 0.3% m/m, after a 0.2% gain in September. This missed the consensus estimate of 0%. In the three months to October, the economy stalled, the same as the three months to September and shy of the consensus estimate of 0.1%.
There was more bad news as UK manufacturing production declined by 1.1% m/m in October, compared to a 0.1% gain in September and shy of the consensus estimate of 0%. On a yearly basis, manufacturing production fell by 0.8%, down from a gain of 3.0% in September and below the market consensus of 1.9%.
Next up is the Bank of England rate meeting on Thursday. The BoE is widely expected to hold the cash rate at 5.25% for a third straight time. Governor Bailey has signaled that rates will remain higher for longer and that it will take “hard work” to bring inflation back down to the Bank’s 2% target. The markets have priced in three rate cuts in 2024. Bailey has recently come out against expectations about rate cuts and we could see the BoE push back against rate cut speculation at the Thursday meeting.
All Eyes on Fed Meeting
US inflation ticked lower in October as expected and the release was a non-event for the markets, which slightly reduced their rate-cut pricing. Today’s FOMC meeting could provide clues as to what the Fed has in mind in the New Year. The markets have priced in a pause today at close to 100%, so the focus will be the rate statement and Jerome Powell’s post-meeting press conference. If Powell is hawkish and pushes back against rate cuts, it could force the market to again reduce rate cut expectations.