GBP/USD struggles at the 1.3300 level as a widening interest rate gap between the US and UK weighs on the Pound ahead of critical third-quarter GDP figures.
Traders price a quarter-point Fed hike on December 9 at about 90% after October US CPI rose 0.4%, which would lift the Fed top rate to 4.25% above the UK Bank Rate of 4.00%. GBP/USD has already fallen for two sessions to just under 1.3300, its lowest since mid-October, and sits at the top of the 1.3200-1.3300 band. Strong UK GDP on Thursday (forecast +0.7% on the quarter) is the main hope for a rebound, so the downside depends on the data landing as forecast or worse.
The Pound Sterling trades near three-week lows as markets price in a 90% chance of a quarter-point Fed hike on December 9. With US consumer prices rising 0.4% in October, the Fed's top rate is expected to reach 4.25%, outpacing the UK Bank Rate of 4.00%. Investors now look to Thursday's third-quarter UK GDP data, forecast at 0.7%, to determine if the Bank of England will maintain its tightening path.
Markets expect the Fed to raise rates on December 9, which would push the top of the Fed's rate to 4.25%, above the UK Bank Rate of 4.00%. That narrowing rate gap, plus the Pound's slide after the BoE's November 5 hike, has pushed GBP/USD to just under 1.3300, its lowest since mid-October.
Thursday's third-quarter GDP figures, forecast up 0.7% on the quarter and 1.9% on the year, feed into the BoE's December 17 decision. A stronger-than-expected number would support the case for a second BoE rate hike, which the article suggests helped the Pound before, while weak figures would deepen the fall.