UK GDP flatlines as rate-cut bets weigh on Sterling

This morning’s GDP data confirmed sluggish growth in the UK economy, reinforcing the Bank of England’s cautious stance. With inflation seen as having “peaked” and unemployment edging up to 5 %, markets are increasingly pricing in a BoE rate cut as early as December. Sterling softened further as investors anticipate policy easing ahead, reducing the pound’s appeal versus higher-yielding peers.

Isabel Schnabel of the European Central Bank said that inflation risks in the euro zone are “tilted a little bit to the upside”, noting food-price inflation remains strong and disinflationary pressures aren’t sustained. Boris Vujčić, another ECB policy-maker, stated that risks around the inflation forecast are currently balanced and that growth has proven more resilient than expected, a signal that rates are likely to remain unchanged for now. The commentary supports the view that the euro might strengthen further, as stable or rising inflation combined with no imminent rate cuts tends to bolster a currency's appeal.

The Federal Reserve (Fed) is showing divided views on further rate cuts, with several members saying they won’t commit to easing as inflation remains elevated. Still, with the U.S. government shutdown nearing resolution, the dollar is gaining on a rebound in risk appetite and anticipation of renewed economic data. Overall: the dollar is in a holding pattern mixed signals lead to uncertainty, so FX traders may lean dollar‑weak until clearer Fed direction or employment data emerges.