British Pound picks up as Iran peace hopes offset soft UK GDP data

GBP/USD appreciates to the1.3430 area after bouncing near 1.3300 on Thursday.
Reports of advances in the US-Iran negotiations have offset the impact of rather downbeat UK macroeconomic data.
UK GDP contracted 0.1% in April as Industrial Production stalled.

Guillermo Alcala FXStreet

The British Pound (GBP) maintains a moderately positive tone against the US Dollar (USD) on Friday, as investors’ optimism about a US-Iran peace deal has offset rather uninspiring UK data. Bulls are testing the key 200-day SMA at 1.3415 at the moment, after bouncing from lows just above 1.3300 on Thursday.

The pair is drawing support from US President Donald Trump’s comments claiming a breakthrough in the US-Iran negotiations, which, in his words, may lead to a peace agreement in the “coming days”. Iran has shown a more contained enthusiasm, although a government spokesperson affirmed in local media that a deal “is closer than ever before.”

UK economy contracted in April

Earlier in the day, data from the UK National Statistics Office showed that the Gross Domestic Product (GDP) contracted at a 0.1% pace in April, following a 0.3% increase in March. Beyond that, Industrial Production stalled, against market consensus expectations of a 0.1% increase, while, on the positive side, Manufacturing Production rose 0.4% against expectations of a 0.2% decline.

In the US, Producer Price Index (PPI) data released on Thursday showed that prices at factory gates accelerated to a 6.5% yearly rate, its fastest pace in three-and-a-half years. The Core PPI, however, remained steady at a 4.9% year-on-year growth, against market expectations of a 5.4% reading, hinting that spillover from the energy shock might have been contained and pushing back hopes of Federal Reserve (Fed) rate hikes.

Later on Friday, the US Michigan Consumer Sentiment Index is expected to show that US buyers’ optimism remains near historic lows, amid the high cost of living. The risk of this release is skewed to the downside for the US Dollar.

Economic Indicator

Gross Domestic Product (MoM)

The Gross Domestic Product (GDP), released by the Office for National Statistics on a monthly and quarterly basis, is a measure of the total value of all goods and services produced in the UK during a given period. The GDP is considered as the main measure of UK economic activity. The MoM reading compares economic activity in the reference month to the previous month. Generally, a rise in this indicator is bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

Economic Indicator

Industrial Production (MoM)

The Industrial Production index, released by the Office for National Statistics on a monthly basis, measures movements in the volume of output for UK production industries: manufacturing, mining and quarrying, energy supply, and water and waste management. . Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. Generally, a high reading is seen as bullish for the Pound Sterling (GBP), while a low reading is seen as bearish.

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold treads water around $4,000

Gold prices maintain its offered stance in place at the end of the week, hovering around the key $4,000 threshold per troy ounce. The persistent selling bias in the precious metal comes amid decent gains in the US Dollar and an acceptable rebound in US Treasury yields across the curve, all alongside further upside traction in crude oil prices.

Week ahead: Central bank and earnings bonanza could roil markets

After joining the rate-hike club in September, the Federal Reserve looks set to stand pat in October, waiting to assess more data before deciding to hike again. Whilst this isn’t an unusual move for a central bank, it somewhat contradicts Fed Chair Kevin Warsh’s new mantra of data dependency and zero forward guidance.

CFTC Report: WTI rally runs ahead of positioning

The week in one sentence: WTI prices surged while speculative longs were cut in the week to October 20, creating the clearest price/positioning divergence. Sterling and the Canadian Dollar led the constructive currency shift, while Yen longs also rebuilt. Speculators turned less constructive on the WTI, reducing their net exposure to around 89.3K contracts.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.