British pound loses some ground post GDP, analysts see upside potential

British pound loses some ground post GDP, analysts see upside potential

The British pound moved lower in the wake of the second UK Q3 GDP release earlier Thursday. However, it’s retained all its post-budget gains and some of its post Fed minutes upside, too.

And, analysts are positive on sterling, with some pointing to its potential to achieve $1.3460.

By 1120 BST, the British pound was trading at $1.3304. That’s above the level cable was at as the GDP data were released and a little below the $1.3328 it hit after the minutes of the Federal Reserve’s November meeting were published, late Wednesday.

UK GDP in line with forecast

The second estimate of the UK’s third quarter GDP data showed economic growth on the quarter was 0.4%, unchanged from the preliminary estimate. However, the breakdown of where that growth came from, was disappointing.

The Office for National Statistics said consumer spending continued to prop up the UK economy, rising 0.6% on the quarter. That was the biggest gain so far in 2701. Meanwhile, business investment grew just 0.2% compared with the second quarter, the lowest gain this year.

However, despite the improvement from the second quarter in UK GDP, the pace of growth was the second slowest out of the group of the seven most developed countries. Only Japan’s Q3 GDP was slower, rising at 0.3%. An 0.8% increase in Germany, was the fastest expansion in the group.

More potential upside for British pound

Investors continue to digest the GDP data and also the minutes from the US Fed’s November meeting. The minutes, published late Wednesday, suggest that while the expected December hike will still likely materialize, the future upward path of US rates isn’t certain.

That’s due, in part to a disagreement how quickly sluggish inflation will dissipate. And also, because of the high and still rising level of US stock markets.

"In light of elevated asset valuations and low financial market volatility, several participants expressed concerns about a potential build-up of financial imbalances," the minutes said. "They worried that a sharp reversal in asset prices could have damaging effects on the economy."

In the meantime, though, analysts at Commerzbank see the potential for the British pound to move into the $1.3460 level, if it can surpass the $1.3340 level on post-budget and Fed minutes momentum.

By Ilona Billington
Ilona is a freelance writer and editor with over 15 years experience reporting and writing about UK and European economics, real estate, financial markets and central banks.

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