Pound wobbles amid BoE rate uncertainty
The pound (GBP) got off to a slow start last week, with the currency coming under pressure amid concerns that a potential rise in UK public sector pay could place strain on UK finances.
Sterling sentiment then strengthened in the middle of the week in response to the UK’s latest PMIs. GBP investors welcomed the acceleration of activity in both the manufacturing and services sectors this month.
However, GBP exchange rates then faltered in the second half of the week. The pound was undermined by a Reuters poll of economists in which the majority predicted the Bank of England (BoE) will cut interest rates following this week’s policy meeting.
Despite the Reuters poll, investors see this week’s interest rate decision as being on a knife edge. This could lead to some notable movement in the pound on Thursday, depending on whether the BoE opts to cut rates or hold off until September.
US dollar buoyed by stronger-than-expected US growth figures
The US dollar (USD) was muted at the start of last week’s session amid political uncertainty in the US after Joe Biden’s surprise exit from the 2024 presidential race.
A souring market mood then helped to bolster USD demand on Tuesday. However, USD investors were spooked by the subsequent release of the latest US manufacturing PMI on Wednesday as it reported a shock contraction in factory sector growth this month.
The US dollar then bounced back with the release of the latest US GDP figures, as they reported the economy expanded at a faster-than-expected pace in the second quarter.
However, the ‘greenback’ then faltered again at the end of the week as a stronger-than-expected core PCE price index failed to dampen bets on a September interest rate cut from the Federal Reserve.
Unsurprisingly the spotlight this week will be on the Fed’s interest rate decision on Wednesday. No policy changes are expected from the bank this month, but investors will be paying close attention to the bank’s forward guidance as they look for confirmation of a September cut.
Also of note to USD investors will be the latest US jobs data. Could a decline in US payroll numbers this month act as a headwind for the ‘greenback’ at the end of the week?
Euro slides as Eurozone PMIs disappoint
The euro (EUR) initially weakened last week amid European Central Bank (ECB) rate cut bets. Markets grew increasingly confident the ECB will cut rates again in September, despite an improvement in Eurozone consumer confidence.
EUR sentiment then faced a major setback on Wednesday with the publication of the Eurozone’s latest PMIs as markets were dismayed to see that growth in the bloc’s private sector came close to stalling in July.
The euro was then able to claw back a good portion of these losses in the latter half of the week, with EUR investors shrugging off a deterioration in German business morale.
There are a couple of notable Eurozone data releases this week. First up will be the bloc’s first GDP estimate for the second quarter. This may lift the euro if it shows the Eurozone economy expanded at a steady pace in the three months to June.
This will be quickly followed by the bloc’s latest consumer price index. Will a slowdown in inflation stoke ECB rate cut bets and drag on the euro on Wednesday?