GBP/USD exchange rate falls to seven-month low in October
The pound dollar exchange rate jumped above the 1.35 benchmark on 1 October amid expectations the Bank of England (BoE) will keep rates elevated for longer than other central banks – boosting the UK currency. Meanwhile, the dollar was pressured by renewed concerns over the US government shutdown.
The pound tumbled to within a whisker of 1.34 versus the dollar on 7 October as elevated UK government bond yields reignited worries over the country’s fiscal sustainability. A prevailing risk-off sentiment swept across global markets, increasing pressure on the risk-sensitive pound – a risk-adverse mood that supported the safe haven dollar.
Lingering concerns over the UK’s fiscal outlook ahead of the autumn budget dragged the pound into the 1.32 range on 9 October.
Having recovered into the 1.33 mid-range, the pound dollar rate fell sharply into the 1.32 mid-range – a ten-week low – on 14 October following fresh evidence of a cooling UK labour market – signs of weakness that fuelled speculation that the BoE could vote for another rate cut this year.
The pair regained its footing on 15 October as a mildly upbeat market mood and mounting expectations for Federal Reserve interest rate cuts dampened dollar sentiment.
The pound firmed the following day after the UK’s latest GDP data revealed a small uptick in growth for August, before climbing into the 1.34 mid-range against the dollar on 17 October on hawkish BoE remarks. Chief Economist Huw Pill warned that inflation is proving stickier than expected and cautioned against reducing rates too soon.
The pound began sliding lower against the dollar on 20 October as optimism over a potential improvement in US-China relations boosted the US currency.
Having extended its losses, the pound sank to the basement of the 1.33 range on 22 October after UK inflation undershot forecasts. Headline inflation remained at 3.8% for a third straight month in September, rather than edging up to 4% as expected. The weaker-than-expected print reinforced bets on a BoE interest rate cut in December.
The pound steadied against the dollar on 24 October following the release of encouraging UK data. UK retail sales rose to their highest level in three years in a surprise to economists, and UK PMIs increased in October as manufacturing and services showed signs of recovery.
Growing concerns over November’s autumn budget dragged the pound dollar rate into the 1.32 mid-range on 28 October. A potential £20bn hole in the public finances sparked fears that Chancellor Rachel Reeves will be forced to announce higher-than-anticipated tax hikes.
The pound slid to a six-month low against the dollar the following day on persistent UK fiscal worries and Fed comments. Expectations that the challenges facing the UK economy could force the BoE into another interest rate cut this year dented the pound. Meanwhile, the dollar was bolstered following the Fed’s policy announcement. While the central bank didn’t vote to reduce rates as expected, Fed Chair Jerome Powell warned that another cut next month was not a “forgone conclusion”.
The UK currency extended its losses, touching a new seven-month low around 1.309 on 31 October, as investors continued to favour the dollar amid reduced expectations of further Fed policy easing.
The pound dollar exchange rate ended the month at around 1.315.
GBPUSD: 3-Month Chart
Looking ahead
The BoE is anticipated to maintain current interest rates on 6 November, with market participants projecting a possible rate reduction in February.
Influential data from the UK economy in November: Claimant Count Change (11 November, Employment Change (11 November), ILO Unemployment Rate (11 November), GDP (13 November), Consumer Price Index (19 November), Retail Sales (21 November), S&P Global Manufacturing PMI (21 November), S&P Global Services PMI (21 November).
Influential data from the US economy in November: ISM Manufacturing PMI (3 November), ADP Employment Change (5 November), ISM Services PMI (5 November), Nonfarm Payrolls (7 November), Average Hourly Earnings (7 November), Consumer Price Index (13 November), Producer Price Index ex Food & Energy (14 November), Retail Sales Control Group (14 November), S&P Global Manufacturing PMI (21 November), S&P Global Services PMI (21 November), GDP (26 November), Core Personal Consumption Expenditures Price Index (26 November).