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The British pound risks a setback against the euro and dollar following the release of underwhelming UK economic data.
The UK economy shrank by 0.1% in October according to the latest monthly GDP release, disappointing against analyst expectations for growth of 0.1%.
On an annual basis, the economy grew 1.1% in the year to October, although this was below expectations for 1.4%.
The rolling three-month measure of growth was -0.1% in October, which was weaker than expectations for a flat 0%.
Following the release the pound to euro exchange rate dropped from 1.1410 to 1.1390, confirming a negative market reaction.
The pound to dollar exchange rate dropped from 1.1396 to 1.1380.
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Sterling has been ascendant against both the euro and dollar since late November, but these poor data threaten to blunt the advance, particularly versus the euro, as GBP/EUR is seen as more of a ‘pure play’ on UK economic exposure.
The market is fully priced for the Bank of England to react to a slowing economy by cutting interest rates next week.
However, as more soft data comes through bets for further reductions in 2026 will build, and this will weigh on UK bond yields and the pound.
