Pound continues to face downward pressure as economic growth declines

The British pound continues to face downward pressure, with the currency poised to close the week lower.

This ongoing weakness is most pronounced against the U.S. dollar, which is on track to record its strongest week in a month.

The dollar’s performance has been supported by the Federal Reserve’s increasingly cautious stance on monetary policy, signaling a potential shift towards a less accommodative approach.

Fed Chair Powell’s recent remarks stressed about the resilience of the U.S. economy, characterised by steady growth, a robust labour market, and persistent inflationary pressures. These factors could affect the expectations of a rate cut in December. A more hawkish outlook has driven U.S. Treasury yields higher, further contributing to the greenback’s bullish momentum.

Meanwhile, the pound remains vulnerable following the release of the UK’s third-quarter growth data, which showed a modest 0.1% expansion. This marks a significant deceleration from the previous period, with gains in construction and consumer services offset by a contraction in production.

Concerns and speculation surrounding the Bank of England’s (BoE) future rate decisions increased, as market participants question whether the BoE will slow its rate-cutting cycle, thereby dampening investor sentiment. The pound’s trajectory will largely depend on the effectiveness of the UK’s new expansionary budget, which aims to stimulate growth but also risks reigniting inflation, adding further uncertainty to the outlook for UK monetary policy.