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Ahead: FOMC, PPI

Pound Sterling Weighed Down by Contracting GDP and Declining Wage Inflation: Ahead FOMC, PPI

GBP/USD remains on the back foot, trading in negative territory below 1.2550 as weak data from the UK puts pressure on Pound Sterling. The Gross Domestic Product (GDP) contracted by 0.3% on a monthly basis, signaling economic challenges.

Additionally, wage inflation declined sharply, with Average Earnings Including Bonus dropping to 7.2% in the three months to October. These developments could be encouraging for the Bank of England (BoE), who have expressed concerns about high pay growth and its impact on inflation.

IndicatorThree Months to July 2023Three Months to October 2023
Monthly GDP Growth0%
Monthly GDP Change+0.2%-0.3%
Services Output+0.2%-0.2%
Production Output0%-0.8%
Construction Sector Growth+0.4%-0.5%

EUR/GBP Climbs as Pound Sterling Faces Negative Impact

The negative effect of weak UK data is reflected in the strengthening of EUR/GBP, which has climbed into positive territory near 0.8600. This suggests that investors are seeking refuge in the Euro amid concerns surrounding Pound Sterling.

US Inflation Data Key for GBP/USD Demand and USD Support

Market participants are closely watching the release of US inflation data, specifically the Core Consumer Price Index (CPI). A stronger-than-expected reading could boost demand for the US Dollar and potentially weigh on GBP/USD. Conversely, a weaker-than-expected core inflation print may limit USD demand and provide support for GBP/USD.

EUR/USD Halts Winning Streak Before Monetary Policy Decisions

EUR/USD takes a pause in its two-day winning streak as investors await monetary policy decisions from both the United States and the Eurozone. The currency pair is trading lower, hovering around 1.0790 during the Asian session.

Fed Decision in Focus, Interest Rate Projections to Impact EUR/USD

The focus is on the upcoming Federal Reserve (Fed) decision, with expectations for interest rates to remain unchanged. Chair Jerome Powell is anticipated to maintain a cautious tone without considering rate cuts or a victory on inflation. Market participants will closely scrutinize the dot plot, which reveals interest rate projections for 2024. These projections will have a significant impact on interest rate expectations and subsequently influence EUR/USD.

ECB Decision Expected to Bring No Changes, Yet Influences Expectations

Though the European Central Bank (ECB) decision on Thursday is not expected to introduce any policy changes, it could still have an effect on market expectations. The interest rate market suggests a higher probability of a rate cut by March, which continues to weigh on EUR/USD and limit potential rebounds.

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Author

  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.