GBPUSD edged higher on Friday as US Dollar speculators took profits following the Greenback’s robust climb to new 2024 highs.

The GBPUSD edged higher on Friday, reaching the 1.2680s, as traders reduced their short position ahead of the weekend. GBPUSD is recovering from intraday oversold levels achieved on Thursday, when it lost about 2.0% for the week. This came after the US Dollar (USD) outperformed due to solid US economic statistics, the residual effect of Trumponomics, and optimistic comments from Fed Chairman Jerome Powell.

By rights, the pair should continue to tumble following the revelation of dismal UK growth data on Friday. However, it is probable that traders are now viewing the US dollar as overvalued. The US Dollar Index (DXY), which measures the Greenback’s value against six major currencies, hit a new 2024 high on Thursday, perhaps limiting Dollar-traders’ “irrational exuberance”.

The bounce remains stretched as a result of the revelation of dismal UK GDP growth statistics, which clouds the picture.

Although it appears counterintuitive, the Pound Sterling (GBP) is increasing despite the announcement of negative UK GDP growth figures indicating the economy contracted by 0.1% in September. This was less than the 0.2% projected and 0.2% from the previous month.

Furthermore, in Q3, UK preliminary GDP grew by 0.1% QoQ, slowing from 0.5% reported in Q2, undershooting the 0.2% projection. Normally, this would be followed by a sell-off in the pound. However, due to an overbought Dollar trade and the market’s ongoing confidence in the UK’s growth prospects, it has not.

Capital Economics, for example, has not modified its views on the future for Bank of England (BoE) policy or interest rates, which are important drivers of FX valuations. Lower interest rates are generally negative for Sterling since they restrict capital inflows, whereas higher rates have the opposite effect. However, despite the bad economic indicators, they do not expect the BoE to decrease interest rates in December.

According to Capital’s Deputy Chief UK Economist Ruth Gregory, the GDP According to the data, the economy developed “slowly” (in Q3). However, this does not indicate that the UK is on the verge of another recession. And, while today’s report boosts the possibilities of the Bank (BoE) reducing rates again in December, we are keeping to our forecast that the Bank will keep rates constant at 4.75% in December before dropping rates by 25 basis points again in February.”

GBPUSD fell to a five-month low on Thursday following Chairman Powell’s remarks.

The GBPUSD fell to a five-month low on Thursday following Chairman Powell’s remarks. US data showed an above-expectations rise in factory-gate prices, as measured by the Producer Price Index (PPI), in October, and US Jobless Claims falling below estimates in the week ending November 8, driving the Dollar higher as the Cable pair reached a new low.

The two data indicators are especially crucial to Fed policy because of its twin mandate of controlling inflation and promoting full employment. Later in the day, Fed Chair Powell pushed the USD even higher after stating that the US economy was in relatively excellent shape and that the Fed would not need to cut interest rates as rapidly as he had previously anticipated.