Pound at $1.33526 after U.S. growth reaches 3.4% in third quarter
Key Facts
The pound closed at $1.33526 against the U.S. dollar on October 29, up from $1.33257 the previous day, as an estimate showed U.S. gross domestic product grew at an annual rate of 3.4% in the third quarter. The reading was above market expectations of 3.2% and exceeded second-quarter growth of 2.2%, according to EL7 calendar data. The pound had fallen 0.03% to $1.3325 before the growth and inflation data were released, according to a report cited by Investing.com. In another report cited by Reuters, sterling was described as little changed during the October 29 session, after the previous day's budget, but was up 0.52% month to date at that point. The move places the currency's rise in the context of traders weighing strong U.S. data against interest rate expectations in Britain and the United States.
A report on gross domestic product from the U.S. Bureau of Economic Analysis said growth was supported by increases in investment, consumer spending and government spending, partly offset by a decline in exports. The bureau said these components “reflected increases in investment, consumer spending and government spending, partly offset by a decline in exports.” The composition of the reading indicates that domestic spending supported activity, while exports detracted from growth during the quarter. Real final sales to private domestic purchasers, a measure of private demand, rose at an annual rate of 4.9% in the third quarter, compared with a 4.6% increase in the second quarter. The measure therefore accelerated alongside the higher rate of overall GDP growth from the previous quarter.
On prices, the core personal consumption expenditures price index, which excludes food and energy, rose at an annual rate of 2.5% in the third quarter, compared with 3.3% in the second quarter, according to the Bureau of Economic Analysis. The headline personal consumption expenditures index rose at an annual rate of 2.1%, after an increase of 5.0% in the previous quarter. The comparison between the two quarters shows both measures slowed despite strong GDP and private-demand growth.
In Britain, Reuters reported that Finance Minister John Healey's budget included tax increases on banks, gambling, savers and landlords, along with tighter value-added tax rules for online marketplaces and measures to ease the impact of higher energy bills. Healey said he would raise taxes on “banks, gambling, savers and landlords.” The budget came as traders assessed its impact on the pound, while a published report on the currency said the market had priced in a 25-basis-point increase at the Bank of England's November meeting. The backdrop for British monetary policy remains divided: in September, the Monetary Policy Committee kept the interest rate at 3.75% by a 6-3 majority. The three dissenting members voted for an increase of 0.25 percentage points to 4%.
In Britain, attention is turning to the October monthly Decision Maker Panel data, which the Bank of England said it would publish on October 30. The panel covers company expectations, including inflation expectations one year ahead, according to the article on British interest-rate pricing. The bank's next policy event is the Monetary Policy Committee meeting on November 5, when it will issue the meeting summary and minutes and its November Monetary Policy Report. In the United States, the Bureau of Economic Analysis set November 25 as the release date for the next estimate of third-quarter GDP and October personal income and spending data. These dates give traders updates on activity and prices before they reassess monetary policy paths on both sides of the Atlantic.