The Daily Brief

The UK economy grew 0.7% in the third quarter, up from 0.5% in the spring and its fastest pace since 2023, matching consensus and the Bank of England's own projection. September output rose 0.2% against expectations of no growth, enough to show the economy carried momentum into the autumn, though August was revised down to flat. Annual growth reached 1.9%, business investment rose 0.4% on the quarter and stands 3% above a year earlier, and computer programming and consultancy expanded 4.4%, a lead the statistics office links to AI and cloud activity. Taken at face value, this is an economy absorbing a rising Bank Rate rather than buckling under it.

That reading fed straight into rate pricing. Markets now assign roughly a 75% chance to another quarter-point increase in December, on top of last week's unanimous rise to 4.00%, and price three further hikes by the end of 2027 with around even odds of a fourth. Deputy Governor Clare Lombardelli has argued that the conditions for persistent inflation are crystallising and that, without evidence of weaker price pressure, a further near-term rise is likely warranted, describing both December and February as live meetings. One prominent independent forecaster has gone further, suggesting Bank Rate may ultimately need to reach 5% to contain underlying inflation.

None of it moved GBP/USD. Sterling slipped about 0.4% in Thursday's session and closed near 1.3235, its weakest level this month, while GBP/EUR held close to 1.196, just shy of the 1.20 level it broke through last week. That split is the clearest diagnosis available: the pound is not losing a domestic argument, it is losing a transatlantic one. UK rate expectations are rising, but US expectations are rising faster, and a strong GDP print that merely confirmed what the Bank already forecast gave traders no reason to close that gap. With Friday's UK calendar empty, the pair's next move depends almost entirely on this afternoon's US producer prices.

At 1.3235, GBP/USD sits in the lower fifth of its range between the early-October low near 1.318 and last week's high around 1.350, half a cent above the floor. The divergence with the euro cross matters here: euro payables are being priced near the pound's strongest level against the euro in well over a year, while dollar payables are being priced close to the bottom of the recent range, so the same currency is offering very different value depending on the counterparty. A soft US print would give the pound room to recover towards the 1.334 midpoint, but a hot one puts 1.318 within a single session's move, and with the dollar side doing the work, the balance of risk leans towards a test of that floor.

Everything this morning points at 13:30 GMT. October producer prices are expected to rise 0.4% on the month after September's 1.3% surge, with core prices forecast at 0.3% after 0.7%, which would lift the annual rate to 6.6% from 6.3%. The number matters more than usual because several of its components, including airfares and medical services, feed directly into the Fed's preferred inflation gauge, and because it arrives three days after a consumer price report that already put a larger December move into the conversation. A hot producer print on top of hot consumer prices would leave policymakers little room to argue that the energy shock is fading.

Rate futures have settled into a lopsided split: roughly an 85% probability of a quarter-point hike in December and 15% for half a point, with further increases priced into next year. In other words, the quarter-point move is fully in the price, and the dollar's remaining fuel sits entirely in that 15%. The two-year Treasury yield is near 4.87%, up from around 4.73% after Tuesday's inflation data, and the 10-year holds above 5.1% at a three-week high, so the front end is still doing the repricing rather than consolidating it. Fed Vice Chair for Supervision Michelle Bowman speaks this afternoon and San Francisco Fed President Mary Daly, who has already said the Fed will have to tighten further, follows at 17:00 GMT.

The Dollar Index sits near 103.2 this morning after three straight gains, holding its highest level since April 2025. Thursday's data did little to dent it: initial jobless claims stayed low and existing home sales fell to their weakest since 2010, a combination that reads as a housing market buckling under high borrowing costs while the labour market holds, which is exactly the mix that lets a central bank keep tightening. The yen is pinned near 160 per dollar, close enough to prompt fresh verbal warnings from Tokyo, and the euro faces its own test at 10:00 GMT when third-quarter GDP is revised.

At 103.2, the index is roughly 0.9 points above the 101.2 to 102.3 band it traded through last week, a level that already discounts a December hike in full. The reference that matters is the 15% priced for a half-point move. A core reading of 0.4% or more would likely push that probability higher and give the index room to extend, while an in-line or softer print removes the fuel without removing the hike, which limits the downside to a drift back towards 102.3 rather than a reversal. That asymmetry, a capped downside against an open upside, is why the dollar has held its gains through two days of mixed news, and it leaves the balance of risk tilted towards the index holding above 103 into the weekend.

At Thursday's close, a barrel of Brent cost about R1,600, up from roughly R1,520 a day earlier, a 5% jump in one session in the rand cost of the country's largest import category. The rand itself weakened about 1% to finish near 16.76, its softest level this month, and has now given up close to 1.5% over the week. The move came from both sides of the ledger at once: oil climbed as Washington stepped back from Iran diplomacy, and gold fell almost 3% to around $3,875 an ounce as rising Treasury yields pulled money out of non-yielding assets.

That combination is the rand's worst terms-of-trade setup, because South Africa imports the commodity that rose and exports the one that fell. Platinum group metals and gold together account for close to two-fifths of mining output, so a sustained slide in precious metals hits export receipts, tax revenue and the current account in a single move. The rand's earlier resilience this year rested heavily on strong metals prices offsetting expensive oil; Thursday showed what happens when that offset runs in reverse.

The production data offered no cushion. Mining output fell 10.7% on the year in September after a revised 11.7% drop in August, a fifth consecutive monthly decline, with iron ore down 23.7%, coal down 13.4%, platinum group metals down 9.9% and gold down 7.5%. Seasonally adjusted output fell 6% in the third quarter as a whole, so even when prices are favourable the country is shipping less to benefit from them. Local bond yields drifted up to around 8.64%, and the political backdrop adds friction rather than support, with coalition talks for the main metros due to conclude within days of next week's inflation print and Reserve Bank decision.

At 16.76, the rand sits near the weak end of its range between last Thursday's 16.34 and the 16.80 upper boundary, with less than half a percent of headroom before that level is tested. Gold's modest recovery this morning offers a little support, but the setup for a move back towards the 16.57 midpoint needs either a softer US producer print or a sustained fade in oil, and neither is in hand. With the currency pressed against the top of its range and both commodity drivers working against it, the balance of risk leans towards a test of 16.80 before next week's domestic data can offer any counterweight.

The oil market spent last week pricing a deal. Brent fell to a ten-week low near $91.50 on Tuesday after the President described the war as militarily effectively over following talks with Qatar's prime minister, and positioning moved accordingly, with crude on course for a second straight weekly decline as Gulf exports recovered. On Thursday he said the US no longer needs a deal with Iran and directed his vice president to prioritise domestic matters, and Brent climbed back to around $96, where it trades near $95.65 this morning. A market positioned for diplomacy was forced to reprice a conflict with no negotiated end in sight.

The supply side still argues against a full reversal. Middle Eastern crude flows have recovered considerably, US commercial inventories rose by about 4.7 million barrels in the week to 6 November, the largest build since August, and Brent remains almost 10% cheaper than a month ago. Tehran's position, that the blockade and sanctions must go before direct talks begin, leaves physical flows dependent on alternative routes, ship-to-ship transfers and naval escort, which caps how far prices can fall without capping how far they can spike on a single incident.

Elsewhere the tone is set by yields. Gold dropped almost 3% on Thursday as the 10-year Treasury yield held above 5.1%, and is recovering only modestly to around $3,910 this morning, while Bitcoin has fallen to a three-month low. Equities are steadier than the headlines suggest: the S&P 500 sits near 7,600 with futures flat, even after Nvidia shares fell more than 4% on Thursday amid continuing uncertainty over the company's leadership. The common thread is that assets with no yield or uncertain cash flows are being marked down as the cost of money rises, while the index as a whole is holding on the strength of the rest of its earnings.

At $95.65, Brent sits in the lower third of its range between Tuesday's $91.50 low and the roughly $106 it fetched a month ago. That position captures the tension well: the supply recovery argues for the lower end, while the collapse of the diplomatic track removes the premium the market had been subtracting. For energy-exposed costs, the asymmetry has turned. A week ago the risk was that importers would lock in prices just before a peace-driven slide; with that scenario now off the table for the moment, the more likely surprise is upward, through a headline in the Gulf, while the floor near $91 looks firm as long as Washington stays out of negotiations.