GBP/USD nears seven-month low in risk-off trade

Philip McHugh October 26th 2023 - 2 minute read

The US dollar continued to rally on Wednesday as a downbeat mood helped to underpin demand for the currency.

Meanwhile, the pound is struggling to hold its ground this morning, with GBP/EUR muted at €1.1459 and GBP/USD slipping to $1.2076. GBP/CAD is subdued at CA$1.6686, while GBP/AUD and GBP/NZD dip to AU$1.9192 and NZ$2.0858, respectively.

Coming up, the European Central Bank (ECB) will deliver its latest interest rate decision this afternoon. Could some hawkish forward guidance from the bank help to bolster the euro?

What’s been happening?

The US dollar strengthened during yesterday’s European session as a souring market mood saw skittish investors favour the safe-haven currency.

The pound, in contrast, came under pressure on Wednesday as the cautious market mood made the increasingly risk-sensitive currency less attractive to investors. Sterling sentiment was also sapped by ongoing concerns over the health of the UK economy.

Meanwhile, the euro attracted support on Wednesday following the publication of Germany’s latest ifo business climate index, as business morale in the Eurozone’s largest economy improved for the first time in six-months.

However, the upside in the single currency proved modest in scope, with investors reluctant to reposition ahead of the European Central Bank’s latest interest rate decision.

What’s coming up?

The highlight of today’s data calendar will undoubtedly be the ECB’s latest interest rate decision.

The ECB is widely expected to leave interest rates on hold following its October meeting, ending a record run of 10 consecutive rate hikes.

However, with this largely priced in by investors the focus will be on the ECB’s forward guidance. If the bank signals the door is open to raising rates again in the future, the euro could strengthen.

Also in the spotlight today will be the latest US GDP figures. These are expected to report a sharp acceleration of economic growth in the third quarter, which could turbocharge the US dollar this afternoon.

In the meantime, the publication of the Confederation of British industry’s (CBI) latest distributive trends index could weigh on the pound this morning, if it reports activity in the UK’s retail sector remained weak this month.

Written by
Philip McHugh

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