Pound Sterling faces pressure on modest UK Q3 GDP growth

• The Pound Sterling has further weakened due to softer-than-projected flash UK Q3 GDP growth data.
• The UK economy expanded 0.1% in the third quarter, slower than estimates of 0.2%.
• The US government reopens after a 43-day shutdown, the longest in history.

The Pound Sterling (GBP) continues to underperform its major currency peers as weaker-than-projected United Kingdom (UK) preliminary Gross Domestic Product (GDP) data has prompted economic concerns further.

On Tuesday, the UK economic uncertainty escalated after the release of the labour market data for the three months ending September, which showed that the Unemployment Rate accelerated to 5%, the highest level seen since February 2021.

During the European session, the UK Office for National Statistics (ONS) reported that the economy expanded 0.1% in the third quarter of the year, slower than estimates of 0.2% and the 0.3% growth seen in the second quarter. On an annualized basis, the UK economy grew at a moderate pace of 1.3%, against expectations and the prior release of 1.4%.

Month-on-month, the UK economy contracted by 0.1% in September, while it was expected to remain flat. Meanwhile, Manufacturing and Industrial Production have declined at a stronger-than-projected pace in September after rising in August. On month, the Manufacturing and Industrial Production dropped by 1.7% and 2%, respectively.

Signs of slowing UK economic growth and declining factory activity would further intensify market speculation that the Bank of England (BoE) will cut interest rates at the December monetary policy meeting, which accelerated after soft job market data.

On the political front, several British media outlets have stated that the allies of Prime Minister Kier Starmer are conspiring to oust him ahead of the Autumn Budget, which is scheduled to be unveiled later this month. Starmer's oust at times when the UK economy is facing higher fiscal debt risks would lead to political instability, an event that might boost gilt yields.

Daily digest market movers: US government reopens after a 43-day shutdown

• The Pound Sterling trades with caution near 1.3130 against the US Dollar (USD) during the European trading session on Thursday. The GBP/USD pair is broadly under pressure as the Pound Sterling underperforms due to weak UK data.
• Meanwhile, the US Dollar ticks down as traders demonstrate confidence that the Federal Reserve (Fed) will cut interest rates again at the December monetary policy meeting.
• During the press time, the US Dollar Index (DXY), which tracks the Greenback's value against six major currencies, trades near the 10-day low around 99.30.
• According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 25 basis points (bps) to 3.50%-3.75% in the December meeting is 67%. This will be the third interest rate cut by the Fed in a row.
• The latest Reuters poll on the Fed's interest rate decision for the December meeting shows that 80% of economists predicted a 25-bps interest rate reduction, citing weak job market conditions.
• On Wednesday, Boston Fed Bank President Susan Collins stressed the need to loosen monetary conditions further amid escalating job market risks. "It is prudent to normalize rates a bit further in 2025 as the downside risks to the labor market have likely risen," Collins said at the Greater Boston Chamber of Commerce.
• On the political front, the US President Donald Trump signed the spending bill on Wednesday to reopen the government after what has been the longest shutdown ever, lasting 43 days, BBC News reported.

Technical Analysis: Pound Sterling sees more downside as it stays below 200-day EMA

The Pound Sterling trades inside the previous day's trading range around 1.3130 against the US Dollar on Thursday. The overall trend of the pair remains bearish as it trades below the 200-day Exponential Moving Average (EMA), which is around 1.3261.

The 14-day Relative Strength Index (RSI) struggles to return above 40.00. A fresh bearish momentum would emerge if the RSI resumes its downside journey.

Looking down, the April low near 1.2700 will act as a key support zone. On the upside, the October 28 high around 1.3370 will act as a key barrier.

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