Resilient UK growth data and a 70% market-implied probability of a December Bank of England rate hike provide a bullish backdrop for the Pound, particularly against the Euro.
UK Q3 GDP grew 0.7% q/q (vs 0.5% in Q2) and September GDP rose 0.2% m/m vs 0% consensus, reinforcing the case for further BoE hikes. Swaps price ~70% odds of a 25bp hike on December 17 and 85bps of tightening over twelve months, which supports GBP. The main caveat is that rates pushed well above the 2-4% neutral range raise future growth risks.
Resilient UK growth reinforces the case for further BoE hikes, which the analysis explicitly flags as GBP positive, especially against EUR. A wider UK rate-hike path relative to the euro area pressures the cross lower. The effect is indirect and depends on the euro side of the pair.
The British Pound remains supported by resilient economic data, with UK Q3 GDP growing 0.7% quarter-over-quarter. September GDP also outperformed expectations, rising 0.2% month-over-month, which reinforces the case for further Bank of England tightening. Swap markets currently price in a 70% probability of a 25bps hike on December 17, pushing rates toward 4.25%.
Resilient UK activity (Q3 GDP +0.7% q/q, September +0.2% m/m vs 0% consensus) reinforces the case for additional BoE hikes, which analysts see as GBP positive, especially against the euro.
If swaps-implied tightening of 85bps over twelve months pushes rates well above the BoE's 2-4% neutral range, it raises the risk of a sharper growth slowdown, which could weigh on the Pound.
The strong data supports the Pound, and the analysis specifically highlights GBP strength against the euro, which would push EUR/GBP lower.