- The Pound continues appreciating and reaches a 2, 1/2-month high at 1.1840.
- UK GDP contracted less than expected in Q3.
- The US Dollar remains under pressure on Fed easing hopes.
The pound has rallied for the second consecutive day against a battered US Dollar, to hit fresh two-week highs at 1.1840 so far. On the weekly chart, the pair is on track to a 4.8% rally in its best weekly performance in more than two years.
UK GDP contracts less than expected in Q3
Preliminary UK Gross Domestic Product has shown a 0.2% contraction in the third quarter, significantly above the -0.5% market consensus following a 0.2% advance in the previous quarter. Year on year, the UK economy slowed down to 2.4% from 4.4%, still better than the 2.1% reading anticipated by market analysts.
Although these figures confirm the Bank of England’s forecasts that the country is entering a lengthy recession, the market seems to have welcomed the data, which has allowed the pair to extend its sharp two-day rally.
On the other end, the US Dollar has extended its sell-off, triggered by the softer US inflation figures seen on Thursday, which has acted as a tailwind for the pair. US CPI slowed down to a 7.7% yearly rate in October, according to data from the US Bureau for Labor Statistics, well below market expectations of 8% and down from the 8.2% reading seen in September.
These data suggest that inflationary pressures may be easing, which has boosted expectations of a dovish shift by the US Federal Reserve over the coming months. This has crushed demand for the US and boosted world equity markets.
In a very thin US calendar, the Preliminary Michigan Consumer Sentiment Index anticipated a sharper-than-expected deterioration in November. Higher prices and concerns about the increasing interest rates are weighing on consumers’ confidence.
Technical levels to watch