Pound Under Pressure Eyeing Tomorrow’s GDP for Directional Clues

Key Takeaways:

*UK GDP is expected to slow to 0.2% q/q, highlighting the economy’s loss of momentum and compounding recent weak labor data.

*BoE rate expectations: Markets price a 73% probability of a December rate cut, reflecting the tension between slowing growth and persistent inflation.

Market Summary:

Sterling enters the spotlight under notable pressure as market focus turns to tomorrow’s UK GDP release, with the quarter-on-quarter growth rate forecasted to slow to 0.2% from the previous 0.3%. Analysts at Deutsche Bank warn that the UK economy is losing momentum, citing weak industrial output and waning consumer confidence. This slowing growth compounds recent disappointing labor market data, which showed unemployment rising to 5.0% while wage growth cooled, already pressuring sterling and prompting markets to price in a 73% probability of a Bank of England rate cut in December. The combination of sluggish growth and persistent inflation leaves the BoE in a delicate balancing act, needing to support economic activity while containing price pressures.

BoE officials, including Governor Megan Greene, have signaled caution amid these mixed dynamics. While acknowledging softer labor data, policymakers remain wary of elevated inflation, leaving the committee split on the next policy move. Political developments, particularly the upcoming Autumn Budget, may further influence market expectations if fiscal measures constrain growth. Traders are closely monitoring BoE commentary, as any dovish tilt could reinforce downside pressure on sterling, while signs of resilience could temper market expectations for easing.

Externally, broader market dynamics are adding complexity. The U.S. dollar has softened due to weak domestic data, offering limited support to the pound. Meanwhile, global risk sentiment has improved following the resolution of the U.S. government shutdown, pushing investors toward higher-yielding or growth-sensitive assets. This environment could benefit sterling if domestic UK data shows resilience, but a soft GDP print may blunt any spill-in support and leave GBP/USD vulnerable to renewed downside.

In summary, sterling’s near-term trajectory looks fragile. A below-forecast GDP or flat underlying growth components (services, production, construction) is likely to weigh on the pound, increase expectations of BoE easing, and maintain market pressure. Conversely, any upside surprise or signs of domestic economic resilience could stabilize the currency, but current indicators suggest downside risks dominate. Market participants will be watching both the headline GDP and sectoral breakdowns closely for guidance on the pound’s direction in the coming weeks.

Technical Analysis

GBPUSD, H4

GBP/USD has recently encountered resistance near the 1.3220 region after staging a short-term recovery from its multi-week low around 1.3020. The rebound was driven by profit-taking following an extended bearish move, but momentum appears to be moderating as price struggles to sustain gains above the 1.3200 threshold. This level now acts as a key pivot, with the pair consolidating below it amid cautious sentiment.

The broader structure still reflects a bearish bias, as the pair remains well below the previous swing highs and continues to trade within a descending channel. Immediate support lies near 1.3020, where buyers previously defended the level, while stronger downside support can be found around 1.3020 — a zone that marked the last significant reversal base. On the upside, a decisive break above 1.3220 could open the door for a move toward 1.3480, where the next major resistance awaits.

Momentum indicators are sending mixed but slightly corrective signals. The RSI has retreated from the 60 area toward 57, suggesting waning bullish momentum and potential for short-term consolidation or pullback. Meanwhile, the MACD histogram is flattening, with the signal lines showing signs of convergence, hinting at a slowdown in upward momentum and the possibility of a neutral-to-bearish crossover if selling pressure builds.

Resistance Levels:1.3220, 1.3480

Support Levels: 1.3020, 1.2870