Sterling falls back towards $1.22 as markets await GDP data

LONDON (Reuters) - Sterling fell on Thursday, as risk appetite in global markets waned and investors grew cautious before the first reading of Britain’s third-quarter growth data, capturing the impact on the economy of June’s Brexit vote.

An English ten Pound note is seen in an illustration taken March 16, 2016. REUTERS/Phil Noble/Illustration/File Photo

Analysts are expecting a 0.3 percent rise in gross domestic product last quarter, which would keep the annual growth rate steady at 2.1 percent. The data, due out at 0830 GMT, will not include details of consumer spending or capital investments but give the markets an insight into whether Brexit-inspired uncertainty is affecting the economy or not.

“A better-than-expected quarter is likely to see a sharp rebound in the pound,” said Kathleen Brooks, research director at City Index. “A weaker-than-expected reading could see another plunge in the pound, although we think a positive surprise would have a larger impact, since so much Brexit gloom is already baked into sterling.”

Sterling was trading 0.3 percent lower at $1.2212, while it was also lower against the euro at 89.40 pence. The pound also tends to perform in sync with stock markets, which were nursing losses on Thursday.

Traders and analysts said the evidence so far suggested that the economy had held up well and Britain was likely to dodge a recession.

Nevertheless, the currency has shed nearly 18 percent against the dollar since the June vote, with losses accelerating in October after May raised the prospect of a “hard” Brexit.

This would mean the government favouring tighter immigration controls over free trade in exit negotiations, potentially curbing the foreign investment needed to fund Britain’s huge current account deficit.

In early September, the Band of England said it was likely to cut rates again this year if the economy slowed as it expected.

But sterling’s weakness and a rise in inflation expectations have prompted most to rule out a Nov. 3 cut - around three quarters of the 60 economists polled by Reuters in the past few days expect rates to stay at 0.25 percent for the rest of the year. [BOE/INT]

“Even though the threat of a ‘hard Brexit’ instils a long-term bearish outlook for the pound, sterling/dollar may face a larger correction over the days ahead, especially as the BoE appears to be in no rush to implement lower borrowing costs,” said David Song, currency analyst at DailyFX.

Reporting by Anirban Nag