GBP/USD Rises on UK GDP Data, but Outlook Remains Cloudy

GBP/USD has been rising modestly on Wednesday but remains close to its three-month low after falling more than 2% in September. The move higher comes after stronger-than-expected UK GDP data, which showed that Q2 GDP was upgraded to 0.5%, beating the initial estimate of 0.4%. This follows growth of 0.6% in Q1.

The data confirms that the UK was the fastest-growing G7 economy in the first half of the year, with consumers continuing to spend despite Middle East conflict lifting oil prices and adding to inflationary pressures. However, the outlook for the second half of the year is darkening, with growth expected to slow to 0.2% in Q3 and Q4 amid fresh spikes in living costs.

The US dollar has been pulling back from its two-month high as Treasury yields retreat following dovish remarks from New York Fed President John Williams. Williams warned that the central bank does not need to rush its next move, and US data was weaker than expected, with Conference Board consumer confidence falling to its lowest level since May 2014.

Attention will now turn to US core PCE, the Fed's preferred gauge of inflation, which is expected to rise 0.3% month-on-month, up from 0.2%. Strong data and hawkish Fed officials could see October rate hike expectations rebound, lifting the US dollar and pulling GBP/USD lower.