By James Caley
After a relatively quiet end to last week, markets have been stirred by a series of key economic releases, with sterling posting modest short-lived gains against the euro and sustained improvement against the dollar. Since the Bank of England’s rate decision, intraday rallies have reached around +0.7% versus the dollar, with smaller but steady moves versus the euro.
The week began with the Bank of Australia cutting interest rates by 25 basis points, as widely expected. GBP/AUD rose by a few tenths of a percent on the announcement, though the move was short-lived, and the pair remains broadly in line with levels seen a month ago.
In the UK, the unemployment rate held steady at 4.7%, while wage growth stayed elevated at roughly 5% year-on-year. These figures reinforced expectations that the Bank of England will take a cautious approach to further easing, with market pricing for cuts now notably reduced compared with earlier in the summer.
In the US, inflation picked up in July, headline prices rose to 2.7% year-on-year, while core inflation climbed to 3.1%, its largest gain in six months. Even so, markets now see a very strong chance the Federal Reserve will cut interest rates in September. This expectation put pressure on the dollar, giving sterling a boost.
Today we have Consumer Prices for the Eurozone and a couple of speeches from the Fed, then the market focus turns to Thursday’s batch of UK data, including GDP, industrial output and manufacturing, alongside eurozone GDP and industrial production. Later in the week, US producer price and retail sales figures will provide fresh tests for the dollar’s recent softness. With multiple releases still to come, volatility remains a strong possibility. Speak to your currency consultant to learn about the range of currency contracts available to help mitigate the risk of adverse market movements.