The British pound edged slightly lower against the dollar on Thursday before trimming some of its losses, after economic data showed that the UK economy grew more strongly than expected in November. However, the data had little impact on monetary policy expectations.

Market participants have priced in interest rate cuts by the Bank of England totaling around 40 basis points by next September.

UK gross domestic product recorded its fastest pace of growth since June, supported by Jaguar Land Rover returning to full production capacity following a cyberattack that had affected the carmaker and its supply chains.

Callum Pickering, Chief Economist at Peel Hunt, said: “Despite the positive surprise, it is important to note that the data are not strong by any means.”

He added: “Economic activity in the UK is, at best, lukewarm and volatile, and remains largely constrained by weak confidence in the policy decisions taken by the Labour government.”

The pound fell by 0.05% to $1.3443, after having been down about 0.10% before the data were released.

Meanwhile, the dollar rose as markets looked past concerns over the independence of the Federal Reserve and shifted their focus back toward economic data.

Andrew Wishart, an economist at Berenberg, said: “The broader picture still points to the UK economy having lost momentum since the summer.”

He added: “We expect this weak phase to persist into 2026 amid ongoing job losses and fiscal tightening,” noting that this backdrop could help bring inflation down and allow the Bank of England to cut interest rates more aggressively than markets currently expect.

Analysts said investors have begun to refocus on economic data after the support the pound had recently received from easing financial and political risks in the UK faded — factors that had bolstered the currency following Chancellor Rachel Reeves’ November budget announcement.

The next batch of UK consumer price inflation data is due to be released on January 21.

At the same time, the euro rose by 0.15% to 86.54 pence.

The release of China’s full-year 2025 trade data on Wednesday highlighted a sensitive issue for the UK — the risk of the British market being flooded with Chinese goods originally destined for the US market.

The data showed that Chinese goods exports to the UK rose by 7.8% year on year in 2025, while exports to the European Union increased by 8.4%.

Gold prices retreated in European trading on Thursday, giving up their record highs, amid active corrective moves and profit-taking, as safe-haven demand for the metal slowed after US President Donald Trump adopted a cautious stance toward the protests in Iran.

Prices were also pressured by a stronger US dollar ahead of the release of key US labor market data, which are expected to provide further clues about the Federal Reserve’s interest rate path over the course of this year.

Price Overview

• Gold prices today: Gold fell by around 1.0% to $4,581.33, from an opening level of $4,627.35, after touching an intraday high of $4,632.73.

• At Wednesday’s settlement, the precious metal gained 0.9% and recorded an all-time high at $4,643.02 per ounce.

US Dollar

The US dollar index rose by 0.15% on Thursday, resuming gains that had briefly paused in the previous session, and moved closer to a four-week high, reflecting broad strength in the US currency against a basket of major and minor currencies.

US President Donald Trump said on Wednesday that he does not intend to dismiss Federal Reserve Chair Jerome Powell, despite the criminal investigation being conducted by the Department of Justice, adding, however, that it was “too early” to determine what he would ultimately do.

US Interest Rates

• Trump welcomed the inflation data released this week and renewed his call for Federal Reserve Chair Jerome Powell to cut interest rates “substantially.”

• According to the CME FedWatch tool, the probability of leaving US interest rates unchanged at the January 2026 meeting currently stands at 95%, while the probability of a 25-basis-point rate cut is priced at 5%.

• Investors are currently pricing in two US rate cuts over the course of next year, while Federal Reserve projections point to a single 25-basis-point cut.

• To reassess these expectations, investors are awaiting the release later today of additional key US data, including weekly jobless claims.

Gold Outlook

Market strategist Ilya Spivak said: We are seeing a modest pullback in gold prices today after Trump said the US may not intervene in Iran, which curbed safe-haven demand, but the broader story supporting higher prices remains intact.

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, were unchanged on Wednesday, keeping total holdings at 1,074.23 metric tons, the highest level since June 17, 2022.

The British pound retreated in European markets on Thursday against a basket of global currencies, moving into negative territory against the US dollar amid a rise in the American currency ahead of the release of key US labor market data.

With the likelihood of a Bank of England interest rate cut next February remaining weak, investors are later awaiting the release of the UK’s monthly economic growth data, along with additional figures on British factory output.

Price Overview

• British pound exchange rate today: The pound declined against the dollar by 0.15% to $1.3423, from the session opening level of $1.3443, recording a high of $1.3446.

• The pound rose by about 0.2% against the dollar on Wednesday, marking its second gain in the past three days, supported by recovery buying from a three-week low at $1.3391.

The US Dollar

The dollar index rose by 0.15% on Thursday, resuming gains that were temporarily halted the previous day and moving closer to a four-week high, reflecting the rise of the US currency against a basket of major and secondary currencies.

This advance comes as the probability of the Federal Reserve cutting US interest rates in January declines. To reprice these expectations, investors are later awaiting the release of weekly US jobless claims data.

UK Interest Rates

• Pricing for the probability of the Bank of England cutting UK interest rates by about 25 basis points at the February meeting remains steady below 20%.

• To reprice these expectations, investors are later awaiting the release of key UK economic data, including economic growth figures for last November and additional data on British factory output.

Outlook for the British Pound

Here at Economies.com, we expect that if UK economic data come in less positive than markets anticipate, the probability of a UK interest rate cut next February will rise, leading to further downside pressure on the British pound.

The Japanese yen retreated in Asian markets on Thursday against a basket of major and secondary currencies, resuming its losses that were temporarily halted yesterday against the US dollar, and moving closer once again to its lowest levels in 18 months. This decline comes under the watch of Japanese authorities, who have warned against excessive movements in the local currency in the foreign exchange market.

In the latest opinion polls on the path of Japanese monetary policy, economists said the Bank of Japan would most likely prefer to wait until July before raising the key interest rate again, with more than 75% expecting it to rise to 1% or higher by September.

Price Overview

• Japanese yen exchange rate today: The dollar rose against the yen by 0.15% to ¥158.65, from the opening price of ¥158.43, recording a low of ¥158.19.

• The yen ended Wednesday’s trading up 0.4% against the dollar, marking its first gain in the past seven days, supported by recovery buying after it earlier hit an 18-month low at ¥159.45 per dollar.

Japanese Authorities

Japan’s Finance Minister Satsuki Katayama issued another verbal warning on Wednesday, saying officials would take “appropriate action against excessive movements in the foreign exchange market without ruling out any options.”

Foreign exchange strategy analysts at OCBC said in a note that verbal warnings helped temporarily curb yen weakness, but investors are likely to test how willing the authorities are to back up their words with action.

They added that for a genuine recovery in the yen, markets need a more hawkish stance from the Bank of Japan and clarity on Japan’s fiscal and political outlook.

Early Elections

Japanese Prime Minister Sanae Takaichi intends to dissolve the House of Representatives next week and call for early parliamentary elections, to strengthen her popular mandate and secure a comfortable parliamentary majority that would ensure the passage of the 2026 fiscal year budget and the proposed economic reforms.

Karl Schamotta, Chief Market Strategist at Corpay in Toronto, said Takaichi’s plan to capitalize on her strong popularity by calling early elections translates into rising bets on a recovery in the Japanese economy, increased government spending, and higher yields.

Schamotta added that all of this is already translating in the market into downward pressure on the yen, which is naturally met by threats of intervention from the authorities.

Japanese Interest Rates

• A Reuters poll: The Bank of Japan will raise interest rates again to 1% or more by the end of September, possibly by July.

• Economists say the Bank of Japan will most likely prefer to wait until July before raising the key interest rate again, with more than 75% expecting it to rise to 1% or higher by September.

• Pricing for the probability of the Japanese central bank raising interest rates by a quarter percentage point at the January meeting remains steady below 10%.

• The Bank of Japan meets on January 22–23 to review economic developments in the country and determine the appropriate monetary tools for this sensitive phase facing the world’s fourth-largest economy.