GBP/USD

The Pound continued to trade lower despite an upward revision to the third quarter U.K. GDP from -0.3% to -0.2%. Markets were expecting an improvement to -0.1%, as strong growth from other developed nations had raised the outlook for the world’s sixth largest economy. The potential for the economy to emerge from its recession in the final quarter of 2009 has raised expectations that the BoE will bring an end to their asset purchase program and look toward tightening. The shortening time frame for a rate hike has increased U.K. interest rate expectations in determining GBP/USD price direction, which is currently explaining 32% of volatility compared with 19% a week ago. However, risk appetite has also seen a rise in its influence from 28% to 43% in the past month, but that relationship has shown signs of waning over the past few days which increases the importance of tomorrow’s BoE minutes release.

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Pound Continues To Fall Despite Improving Outlook For Interest Rates