Positive GDP figures in the US drove dollar selling yesterday enabling the pound to gain

Sterling extended its rally, briefly climbing above $1.66 as the dollar sold off broadly after strong economic growth data spurred demand for riskier assets.

  • In early trading, the pound found support from data that showed UK mortgage approvals for September increased to their highest level since February last year, exceeding market forecasts.
  • Risk appetite was buoyed further in the afternoon after a report showed the US economy returned to growth in the third quarter, boosting stocks and reducing the appeal of the relative safety of the greenback.
  • The US economy in the third quarter grew by 3.5% on an annualised basis, beating market expectations of a 3.3% rise and easing recently voiced concerns over the strength of the US recovery.
  • Analysts noted that with the US GDP figure meeting market expectations, market players returned to using the dollar to fund carry trades, driving the US currency lower.
  • The gains of 1.0% helped propel sterling toward its first monthly advance versus the dollar since July.
  • However, gains were capped as the Labor Department revealed that unemployment claims inched lower in the week to 530K but missed forecasts of a drop to 520K.