The GBP/USD crashed to the lowest level since December 2020 as investors reacted to the weak UK GDP data and the strong American inflation data. The pair has dropped by more than 6.25% from its year-to-date high.
Sterling under pressure
The British pound is on track to fall for three straight weeks as investors reflect on the rising inflation. On Wednesday, data by the American government showed that the country’s inflation jumped to 6.2% in October. This was the highest figure since 1991. Core CPI, which is a closely watched figure, also rose to 4.6%.
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Analysts believe that America’s inflation will get worse. For one, natural gas prices are expected to keep soaring ahead of the winter season. Gasoline prices are also expected to keep rising because of the rising crude oil prices.
Therefore, there is a likelihood that the Federal Reserve will tighten faster than expected. In its most recent interest rate decision, the Federal Reserve started slowing its quantitative easing (QE) policies. It also hinted that it will accelerate the tapering if the economic strength continued.
Last Friday, data by the Bureau of Labor Statistics (BLS) showed that the country’s unemployment rate dropped to 4.6% in October. The economy added more than 500k jobs in that month.
UK GDP data
The GBP/USD pair also crashed because of the relatively weak UK GDP data. On Thursday, the Office of National Statistics (ONS) showed that the economy grew by 1.3% in the third quarter. This was a dramatic pullback from the second quarter’s growth of 5.5%.
The UK GDP grew by 6.6% on a year-on-year basis. This was also lower than the previous 23.6% and the median estimate of 6.8%.
Meanwhile, the country’s manufacturing production rose by 2.8% in September after rising by 4.1% in the previous month. Industrial production crashed by 0.4% while the construction output rose by 1.3%.
These numbers came two weeks after the recent Bank of England interest rate decision. In that decision, the bank surprised investors by leaving interest rates and quantitative easing policies unchanged.
Before the meeting, analysts were expecting that the bank will either start tapering its asset purchases or even hike interest rates.
Looking forward, the GBP/USD pair will likely keep falling as investors focus on the rising global inflation and its implications.
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