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Pound rallies despite slower economic growth

Sterling continues to strengthen but global stock market sell-off intensifies.

UK gross domestic product (GDP) data showed that the monthly estimate stalled in August. However, the economy grew by 0.7 per cent in the three months to September, according to the Office for National Statistics (ONS). Despite the disappointing monthly growth rate, it is still the best quarter in two years.

Meanwhile, EU chief Brexit negotiator Michel Barnier suggested a deal might be “within reach” by next week, with “80–85 per cent of the withdrawal agreement been agreed”. The news will bode well for Sterling, which is already up by more than 2 per cent against the greenback this month.

In the US, trade tensions with Beijing remain elevated. However, an official from China’s Ministry of Finance has said he felt “a little bit more optimistic” about a possible breakthrough in trade negotiations with Washington. But US President Donald Trump is less confident. Earlier this week, Trump claimed that China was not ready to reach a deal.

Furthermore, US Treasury Secretary Steven Mnuchin has warned Beijing against devaluing its currency to stay competitive. The Renminbi has dropped close to 9 per cent over the past six months, and deteriorating economic data could weaken the redback further.

Global stock markets continued to sell off. The US S&P 500 Index sank 3.3 per cent yesterday, 10 October for the fifth consecutive day, having made the biggest losses since February. Rising interest rates, the ongoing trade war and upcoming US mid-term election have been cited as catalysts.

Focus today shifts to the pace of US inflation, which is expected to have risen by 2.3 per cent in September. Any hint that inflationary pressure is accelerating will be a sign for the Federal Reserve, which has previously warned the US economy may be overheating.

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