GBP/USD: Pound Dips As UK Polititcs & G20 Take Centre Stage
  • Pound (GBP) rises for a second straight day
  • UK recession looks unavoidable
  • Euro (EUR) falls despite improving business sentiment
  • ECB minutes are to be released later

The Pound Euro (GBP/EUR) exchange rate is rising for a second straight day. The pair rose 0.5% yesterday, settling at €1.1593 after trading in a range between €1.1495 – €1.1646. At 09:25 UTC, GBP/EUR trades +0.1% at €1.1600.

The pound is on the rise, supported by the risk-on mood in the market and despite concerns over the outlook for the UK economy.

The latest UK PMI data showed that the UK economy contracted for a fourth straight month in November. The S&P Global/ Cips UK flash composite PMI was 48.3 this month, broadly unchanged from 48.2 in October. The level 50 separates expansion from contraction.

The data adds to evidence that the UK is heading into a recession this quarter, with two straight quarters of negative GDP growth.

The Office of Budget Responsibility said last week that the UK economy is expected to contract 1.4% across next year. Meanwhile, the OECD forecasts that the UK will be the weakest economy in the G20 with the exception of Russia.

Today’s attention will be on Bank of England speakers, with Chief economist Huw Pill, David Ramsden, and Catherine Mann all due to hit the airwaves. Their commentary will be watched closely for clues on the future path of interest rates. Yesterday Huw Pill said that more interest rate hikes were needed to tame inflation.

The euro is rising versus the USD by falling versus the pound after German business morale improves. The closely watched IFO business climate index rose to 86.3 in November, up from 84.5  in October. The improved mood comes following unexpected GDP growth in the third quarter and as full gas storage calms energy supply crunch fears.

Looking ahead the minutes to the latest ECB meeting will be in focus and could give further clues over the expected path for future interest rate hikes. Recently some ECB policy makers have hinted towards a 50 basis point hike in December.