Sterling edged lower against the US dollar on Thursday after UK economic data showed stronger growth than expected in November but failed to alter expectations for monetary policy easing later this year. The pound traded slightly weaker as investors focused on the broader slowdown in economic momentum rather than a single month’s improvement. Markets continue to price in around 40 basis points of interest rate cuts by the Bank of England by September, reflecting confidence that inflation pressures will ease as growth remains constrained. While the data briefly helped the currency pare earlier losses, it did little to change the prevailing view that the UK economy is struggling to regain durable traction. The dollar, meanwhile, remained supported by resilient US data and shifting expectations that Federal Reserve policy will stay restrictive for longer than previously anticipated.
UK gross domestic product recorded its fastest monthly expansion since June, helped by a return to full production at Jaguar Land Rover following disruptions caused by a cyberattack earlier in the year. Economists cautioned, however, that the improvement masked underlying weakness across much of the economy. Analysts described activity as uneven and fragile, constrained by weak business confidence and uncertainty around fiscal policy. The data reinforced the view that growth remains vulnerable heading into 2026, particularly as job losses and tighter public finances weigh on demand. With inflation expected to cool under these conditions, some economists argue the central bank may ultimately cut rates more aggressively than markets currently anticipate, keeping pressure on sterling over the medium term.
Currency markets also reflected a broader shift toward US assets as concerns about Federal Reserve independence faded and attention returned to relative economic performance. The dollar strengthened modestly against major peers, including the pound, as investors responded to signs of stability in the US labor market and delayed expectations for rate cuts. Analysts noted that the boost sterling received late last year from easing political and fiscal risks has largely dissipated, leaving the currency more exposed to weak domestic fundamentals. With UK inflation data not due until later in the month, near-term direction for the pound is likely to be driven more by global dollar dynamics than local releases.
Elsewhere, the euro gained against sterling as investors weighed trade risks stemming from shifting global supply chains. Recent data highlighted a rise in Chinese exports to both the UK and the European Union, raising concerns about increased competition and potential price pressure from goods diverted away from the US market. For sterling, the combination of soft growth, expectations of policy easing, and a firm dollar backdrop continues to limit upside potential. Until clearer signs emerge that the UK economy is regaining momentum, currency markets are likely to view rallies as temporary, with focus remaining on relative interest rate paths and external demand conditions.
