By Kian Songra
Thursday witnessed renewed strength for Sterling as markets were moved by the strong flash UK PMI reading for August. The Euro is underperforming against the Pound after soft Q2 Negotiated Wage Rates boosted expectations of European Central Bank (ECB) interest rate cuts in September. The ECB kicked off its policy-easing in June, and after a pause in July, it is expected to cut its key borrowing rates again in September. The data that came in during Thursday’s European trading hours showed that Negotiated Wage Rates grew at a slower pace of 3.55% from 4.74% in the first quarter this year, easing fears of inflation remaining persistent.
Concerning for the Euro is the fact that the upbeat flash Eurozone HCOB Composite Purchasing Managers’ Index (PMI) data for August fails to strengthen the Euro. The preliminary report showed that the Composite PMI unexpectedly rose to 51.2. Economists had projected the overall activity to have barely expanded. Strong growth in the Eurozone economy came largely from upbeat business activity in France due to the Olympic games in Paris, while the PMI in its largest economy, Germany, contracted at a faster pace.
Meanwhile, Sterling performs strongly against its major peers on upbeat preliminary UK S&P Global/CIPS PMI data for August, which has strengthened its economic outlook. The Composite PMI expanded at a faster pace, boosted by a sharp increase in activities in both manufacturing and the service sector.
On Thursday, GBP/USD reached a 13-month high after upbeat UK PMI data, but investors then awaited the Global Services and Manufacturing PMI from the US, where stronger figures for the Dollar pegged back the 0.5% gains the Pound had made earlier in the session.
The Nonfarm Payrolls revision highlighted 818,000 fewer jobs than previously estimated in the US, marking the largest downward revision in over a decade, and confirming market concerns about the US job market. Later, the release of the Fed Minutes for the July meeting confirmed that some members of the Federal Open Market Committee (FOMC) vowed for a rate cut back then, making this move almost certain in September.
Now investors shift focus to the Jackson Hole (JH) Symposium, which will begin tomorrow and last till August 24th. This annual event brings together global central bankers and policymakers to shed light on their monetary policy stance, while discussing key economic topics. The highlight will be Fed Chair Jerome Powell’s speech scheduled on Friday. Investors will look for fresh cues about the potential size of interest rate cuts in September. This event will be eagerly watched by investors, looking to gain an insight into the FED, ECB and BOE stances particularly on interest rates moving forward.
Today we end the week quietly with little data. Market participants will be looking closely observing the comments made by the various central bank leaders around the world at the Jackson Hole Symposium. The words will be examined closely by investors looking for any insights into hints of the economic outlook and interest rate stances. This weekend’s comments could be digested by the market and next week’s early trading session could see a reaction based on investors’ sentiment.
With potential uncertainty ahead and potential interest rate cuts on the cards, it is prudent that you look to stay in contact with your dedicated currency consultant. Friendly guidance and insight into the short-term outlook will be beneficial ahead of your transfers, as well as looking at mitigation options to reduce any unknown risk.