Cable has been rising since its November lows amid a combination of factors. For one, the uncertainty around the Autumn Budget has largely been resolved. UK Chancellor Rachel Reeves appears at least for now to have found the sweet spot of raising taxes just enough to cover the fiscal hole without seriously dampening the economic outlook. Discussions about the Budget at this point revolve primarily around the leak controversy, which is not a major concern for markets.
Now traders are moving their attention to the main factors that could drive cable. Those include the release of October GDP figures on Friday, and next week’s BOE decision. The British economy has been declining through the course of this year, and investors are looking to see when (or if) it will stage a rebound. That could be pivotal for determining the BOE’s outlook, given the strong divisions seen among policy makers.
How Cable Can Rise
The potential for Cable to rise depends on several key factors. The BOE easing cycle, Federal Reserve rate cuts, and inflation dynamics all play crucial roles. If the UK economy shows stronger growth than expected, this could support the pound against the dollar.
Market participants are closely monitoring the divergence between UK and US monetary policy. Should the BOE maintain a more hawkish stance relative to the Fed, this could provide upward momentum for GBP/USD.
Growth Coming Back Into Focus
The UK economy's growth trajectory has been under scrutiny. Q1 managed 0.7% growth, showing initial promise. However, Q2 saw only 0.3% growth, indicating a slowdown. Q3 was practically stagnant at 0.1%, raising concerns about economic momentum.
There is hope for a Q4 rebound, with preliminary data suggesting a return to growth at +0.1% compared to -0.1% in the previous month. Faster growth would be positive for the pound, as it signals economic strength and potentially reduces the need for aggressive monetary easing.
Conversely, if growth enters negative territory, this could signal recession risks, prompting the BOE to consider rate cuts, which would likely weigh on the pound.
What To Look Out For
Traders should focus on the UK September GDP figures, where consensus expects +0.1% compared to -0.1% in the previous month. Positive data could reassure investors about the UK's economic resilience, potentially supporting Cable.
Negative data, on the other hand, could increase pressure on the BOE to cut rates sooner rather than later, which would likely weaken the pound. The interplay between growth data and central bank policy will be critical in determining Cable's direction in the coming weeks.
