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  • Pound Sterling struggles for a direction as investors shift focus to the Q3 GDP data.
  • A poor GDP report would elevate dovish expectations from various BoE policymakers.
  • Rising energy prices have squeezed the UK’s consumer spending.

The Pound Sterling (GBP) is stuck in a tight range as investors seem unwilling to build fresh positions ahead of the release of the UK Q3 Gross Domestic Product (GDP) data, published on Friday at 07:00 GMT. The GBP/USD pair remains on tenterhooks as the Q3 GDP report will shape December’s monetary policy outlook of the Bank of England (BoE).

A decline in consumer spending, poor Services PMI, postponed demand for housing, and contracting hiring have set a negative undertone for the UK’s economic performance in the July-September period. A poor GDP report would elevate dovish expectations from various BoE policymakers, especially from Swati Dhingra, who favors cutting rates if the growth rate remains below expectations. GDP data will be followed by employment and inflation data, which will be released next week.

Meanwhile, BoE Chief Economist Huw Pill said that interest rates are needed to remain restrictive to ease inflationary pressures. More interest rate hikes are not needed to bear down inflation.

Daily Digest Market Movers: Pound Sterling remains on backfoot amid risk-off mood

  • Pound Sterling consolidates in a narrow range below the crucial 1.2300 resistance level as investors await UK factory data for September and Q3 GDP data, which will inform December’s monetary policy decision by the Bank of England.
  • The data is expected to show Manufacturing Production rose by 0.3% in the month of September versus the 0.8% decline in August.  YoY the data is expected to show a 3.1% rise against the 2.8% recorded previously. 
  • Industrial Production is forecast to show a rise of 0.1% against a 0.7% decline in the previous period. The same data is forecast to show a 1.1% increase YoY compared to 1.3% previously. 
  • An uptick in factory data would ease fears of a slowdown in the UK economy.
  • The show-stopper event that would guide further action in the Pound Sterling is the preliminary Q3 GDP data, which will be released at the same time as the factory data at 07:00 GMT.
  • Economists have forecasted a nominal contraction of 0.1% against a 0.2% growth rate in the prior April-June quarter. UK firms underutilized their production capacities to avoid piling up unsold inventories amid a poor demand environment.
  • The data from the Office for National Statistics (ONS) showed that consumer spending contracted in two out of three months in the third quarter as higher energy costs squeezed the real income of households.
  • The UK economy is heavily reliant on the service industry: the Services PMI contracted in all months of the last quarter. 
  • BoE policymaker Swati Dhingra, who supported keeping interest rates unchanged last week, could emphasize cutting rates sooner if the Q3 GDP report turns out excessively weak.
  • Earlier, this week, BoE Chief Economist Huw Pill warned about the potential risks of an excessive slowdown as the central bank is committed to keeping monetary policy sufficiently restrictive for a longer period till the achievement of price stability.
  • Huw Pill said rate cuts in mid-2024 “don’t seem totally unreasonable” and a weak GDP report would prompt dovish expectations from the BoE.
  • The US Dollar drops to near 105.50 after failing to recapture the crucial resistance at 106.00. Investors await Federal Reserve (Fed) Chair Jerome Powell’s guidance on interest rates.
  • This week, a balanced tone from Fed policymakers on the interest rate outlook has kept the US Dollar Index (DXY) broadly sideways in a range of 105.40-105.90.

Technical Analysis: Pound Sterling remains below 1.2300

Pound Sterling trades lackluster near 1.2300 after correcting gradually in the past three trading sessions. The chances of a recovery in the Pound Sterling are decent. 

The GBP/USD pair delivered a breakout of a symmetrical triangle chart pattern last week and the process of testing the breakout with gradual selling seems over. The Cable has stabilized above the 20-day Exponential Moving Average (EMA) but the 200-day EMA is still acting as a barricade.