Title: GBP/USD Rises Despite Weak UK Activity Data; USD Softens Amid Broader Market Trends
By Ruba Hashem | Source: Mitrade.com
The British pound (GBP) saw an increase against the US dollar (USD) in Friday’s trading session, gaining momentum despite a concerning drop in UK economic activity. This unexpected climb came as investors reassessed the broader macroeconomic narrative, especially in light of softening signals from the US economy and evolving central bank expectations.
Overview of Key Developments:
– GBP/USD rose over 0.3% during the day, closing in the higher range as the USD lost strength.
– UK economic activity contracted in October, suggesting a risk of entering a technical recession.
– The US dollar weakened amid soft economic indicators and dovish Federal Reserve expectations.
– Global sentiment appeared cautiously optimistic, supporting risk-sensitive currencies like GBP.
– Focus shifts to upcoming central bank decisions and macroeconomic announcements for further clarity.
Below is a detailed breakdown of the factors influencing the GBP/USD pair and what to anticipate moving forward.
UK Economic Activity Declines in October
Newly released UK economic indicators point to further strain on the domestic economy. The S&P Global/CIPS Flash Composite PMI dropped from 48.5 in September to 48.6 in October. While this exceeded forecasts of 48.4, it remains under the 50-point threshold, the critical level that separates expansion from contraction.
– The UK Services PMI increased slightly to 49.2 from 49.3, still in contraction territory.
– The Manufacturing PMI climbed to 45.2 from 44.3; however, it also remains under 50.
– All three readings suggest subdued economic momentum and risk of a technical recession.
This data has fanned speculation that the Bank of England (BoE) may adopt a more cautious stance in its upcoming monetary policy meetings. As higher interest rates begin to weigh on business activity and household consumption, the path of future rate hikes now appears more uncertain.
Despite these indicators, the pound strengthened, suggesting that market participants are pricing in broader trends rather than solely focusing on UK-specific data.
US Dollar Weakens Amid Changing Market Sentiment
The US dollar declined in Friday’s session as weaker macroeconomic data and shifting expectations around the Federal Reserve’s path weighed on sentiment.
Key factors driving the USD lower:
– Decrease in US Treasury yields, with 10-year yields falling below the 5 percent mark.
– Softening of economic activity as reflected in labor data and PMI results.
– Expectations mount that the Federal Reserve will hold interest rates steady at its next meeting.
Additionally, statements and tone from Federal Reserve officials have grown less aggressive over time. While inflation remains above the central bank’s target, the lagging effects of monetary tightening are becoming more visible, making further hikes less likely in the near term.
Performance of GBP/USD in Context
The pound-dollar exchange rate reflected a shift away from USD strength and a moderate uptick in risk-on positioning. While UK fundamentals remain fragile, the weakening of the greenback due to softer US data provided GBP with an opportunity to rise.
Technical overview:
– GBP/USD tested resistance in the 1.2160–1.2200 range.
– Support is firmly situated around the recent low of 1.2090.
– The Relative Strength Index (RSI) approaches neutral, suggesting scope for either side in forthcoming sessions.
This rebound offers a degree of temporary relief to the sterling, although longer-term prospects remain uncertain in the absence of clearer UK growth expectations or BoE policy direction.
Central Bank Outlook: Bank of England vs Federal Reserve
The diverging policy outlooks between the Bank of England and the Federal Reserve are contributing to movements in forex markets.
Bank of England:
– Monetary policy remains restrictive, but further tightening is less certain given slowing growth.
– BoE policymakers are expected to maintain the current policy rate at the November meeting.
– Economic weakness and inflation persistence place the BoE
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