Sterling gained for the second consecutive day against USD

GBP

The pound gained for the second consecutive day against the US dollar on Friday to hit fresh two-week highs and this resulted in the largest single day rise in the pair since 2017.

UK GDP has shown a 0.2% contraction in the third quarter, significantly above the -0.5% market consensus following a 0.2% advance in the previous quarter. Year-on-year, the UK economy slowed down to 2.4% from 4.4%, still a better figure than the 2.1% reading anticipated by market analysts.

Although these figures confirm the Bank of England’s forecasts that the country is entering a lengthy recession, the market seems to have welcomed the data, which has allowed the pair GBP/USD to extend its sharp two-day rally. Speaking four days ahead of the crucial Autumn Budget, Chancellor Hunt confirmed he expects the UK to plunge into recession and said his goal was to make it “as short and shallow as possible” by bearing down on inflation. He also confirmed that government support for energy bills will be targeted at the most vulnerable after April, in a move expected to cost millions of households hundreds of pounds.

USD

On the other hand, the dollar has extended its sell-off after the softer US inflation figures seen last Thursday, which has acted as the main driver for the USD/GBP pair.

US CPI slowed down to a 7.7% yearly rate in October, according to data from the US Bureau for Labor Statistics, well below market expectations of 8% and down from the 8.2% reading seen in September. These data suggest that inflationary pressures may be easing, which has boosted hopes for a dovish shift from the US Federal Reserve over the coming months. This has crushed demand for the US and boosted world equity markets.