GBP/USD exchange rate dropped to a six-month low in November
Having firmed on 5 November following a better-than-expected UK PMI reading, the pound plunged to a three-month low of around $1.286 the following day. The pair’s downward spiral was triggered when the prospect of a decisive election victory for Donald Trump became apparent, bolstering the dollar.
The pound climbed into the $1.29 mid-range on 7 November following a hawkish interest rate cut by the Bank of England (BoE). While the central bank voted through its second reduction of the year, it had already been priced in by markets. Consequently, the accompanying forward policy guidance affirming that the BoE will maintain a cautious approach to cutting rates lifted the UK currency.
The Federal Reserve approved its second consecutive interest rate cut on the same day, moving at a less aggressive pace than before but continuing its efforts to unwind monetary policy. The central bank’s Federal Open Market Committee lowered its benchmark borrowing rate by a quarter percentage point to a target range of 4.50%-4.75%.
The pound dollar rate slid to a fresh three-month low around $1.273 on 12 November after data showed regular wage growth in the UK cooled and unemployment ticked up. This was compounded by a surging dollar after Donald Trump’s US election victory.
The dollar firmed on 13 November in response to hawkish comments by Federal Reserve policymaker Lorie Logan. Speaking following the release of data showing US inflation accelerated from 2.4% to a three-month high of 2.6% in October, Logan indicated that a December rate cut might not be as clear cut as markets think.
Trump trade continued to fuel the dollar’s relentless rise on 14 November, causing the pound to drop into the $1.26 mid-range – its lowest against the US currency since early July.
The pound dropped to a fresh four-month low versus the dollar the following day amid mounting concerns over the state of the UK economy, which grew less than expected in the third quarter. GDP expanded 0.1% between July and September, a deceleration compared to 0.5% growth recorded in the second quarter and worse than the 0.2% growth forecast.
The pound briefly edged above $1.27 on 20 November after the UK consumer price index for October reported a sharper-than-expected rise in inflation. The surprise print dampened market expectations for the BoE to lower interest rates in December, lifting the UK currency.
Having stumbled after British public borrowing came in higher than expected on 21 November, the pound tumbled to a six-month low against the dollar the next day. This followed a weaker-than-expected UK retail sales report and data showing UK business output in November contracted for the first time in more than a year, underscoring growing economic concerns. The UK currency fell as low as $1.251, its weakest level since mid-May.
After fluctuating for several days amid Donald Trump’s trade tariff announcement, the pound rose more than 1% on 27 November to around $1.268 following hawkish comments from BoE Deputy Governor Clare Lombardelli. In an interview with the Financial Times, the policymaker expressed concerns over persistent inflationary pressures in the powerhouse service sector, reducing expectations for a December rate cut.
The pound dollar rate drifted higher as November drew to a close, ending the month at around 1.273.
GBPUSD: 3-Month Chart
Looking ahead
The next BoE Monetary Policy Committee (MPC) meeting takes place on 19 December. The central bank is expected to keep interest rates on hold after inflation rose above its 2% target.
Influential data from the UK economy in December: ILO Unemployment Rate (17 December), S&P Global/CIPS Composite PMI (17 December), Consumer Price Index (18 December), Retail Sales (20 December), GDP (23 December).
Markets widely expect the Federal Reserve to lower interest rates for the third time this year at its next policy meeting on 18 December.
Influential data from the US economy in December: ISM Manufacturing PMI (2 December), ISM Services PMI (4 December), Nonfarm Payrolls (6 December), Consumer Price Index (11 December), Producer Price Index ex Food & Energy (12 December), Retail Sales (17 December), S&P Global Composite PMI (19 December), GDP (20 December).