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Sterling maintains gains

Daily Currency Update

UK GDP data on Friday continues to support the British Pound into this week. A better-than-expected GDP number for July-September, which showed a contraction of just -0.2% when markets were expecting -0.5%, has dampened the belief of a deeper recession. The news followed Thursday’s US inflation data where US consumer prices rose less than expected in October, lifting hopes that the Federal Reserve will slow its aggressive monetary tightening campaign. Fed Governor Christopher Waller attempted to rein in this optimism on Sunday, saying the markets shouldn't get carried away over just one data point. However, this was unsuccessful with the pace of rate increases expected to slow as early as the next meeting. GBP/USD touched 1.1850 on Friday but has since traded in and out of 1.1800 since. GBP/EUR had made a break for 1.1500 early on Friday but now trades closer to 1.1400.

There is little macroeconomic data to take into consideration today, but FOMC member Brainard is due to speak about the economic outlook at a Bloomberg news event, in Washington DC at 4:30 pm. After the recent US inflation data, market participants will be looking for sound bites on the nation’s key interest rate.

Key Movers

Sterling potentially has another volatile week ahead as attention will be on the U.K. government's new fiscal plan on Thursday, especially after the car crash that was September's mini-budget. UK Chancellor Jeremy Hunt has indicated that around £60 billion in tax increases and spending cuts are coming to tackle the hole in the public finances. Markets participants aren’t only looking for a solid plan to tackle the length of the recession and its depth, but also gain confidence that the prime minister and his Chancellor of the Exchequer are the people to guide the UK through it.

Since June, GBP/USD has traded as high as 1.2600 and as low as 1.0380, averaging at 1.1764 which isn’t far from where we currently trade. GBP/EUR had traded as high as 1.2000 and as low as 1.0820, averaging at 1.1622. If a solid budget isn’t delivered on Thursday, the Pound could certainly be lower against each currency pair. The opposite could be seen if it’s deemed that the correct policies are put into place.

Expected Ranges

  • GBP/USD: 1.1730 - 1.1850 ▲
  • GBP/EUR: 1.1360 - 1.1490 ▲
  • GBP/AUD: 1.7570 - 1.7820 ▲
  • EUR/USD: 1.0250 - 1.0370 ▲