Pound volatile amid mixed data
Trade in the pound was uneven last week as GBP investors contended with a deluge of high-impact UK economic data.
This kicked off with the publication of the latest UK jobs report on Tuesday. This saw unemployment unexpectedly slow from 4.4% to 4.2% in June, missing expectations it would climb to 4.5%.
Meanwhile, average earnings (excluding bonuses) also beat expectations in the three months leading to June, with wage growth slowing from 5.8% to 5.4% against forecasts it would drop to just 4.6%.
Stickier-than-forecast wage growth saw a slight pull back in Bank of England (BoE) interest rate cut bets for September, lending GBP modest support against its rivals.
However, the release of the UK’s latest consumer price index subsequently saw GBP relinquish these gains on Wednesday, as a cooler-than-forecast set of inflation data revived market expectations for a rate cut next month, thereby sapping Sterling sentiment.
On Thursday, data showing the British economy expanded by a healthy 0.6% throughout the second quarter revived GBP demand amid hopes last year’s modest recession is well behind the UK economy.
Rebounding retail activity on Friday then helped the pound maintain a positive trajectory as the week drew to a close.
Coming up, the UK’s latest preliminary PMIs are due for release this week. Could another acceleration of activity in the vital services sector bolster GBP?
US dollar slumps amid surmounting Fed rate cut bets
The US dollar faced selling pressure at the beginning of last week as a cautiously upbeat market sentiment coupled with a modest decline in US Treasury bond yields weighed on the safe-haven currency.
Additionally, a larger-than-forecast decline in US producer prices applied additional pressure to the ‘greenback’ on Tuesday afternoon, signalling that American inflation continues to steadily ease.
On Wednesday, the US dollar index dipped to a fresh seven-month low as investors braced for the latest American consumer price index. Headline inflation unexpectedly cooled to 2.9%, serving to reinforce speculation that the Federal Reserve could deliver multiple interest rate cuts by the end of the year.
On Thursday, a stronger-than-forecast batch of retail data lifted the ‘greenback’ as it helped ease fears the US economy faces a hard landing, however, risk-on flows meant these gains proved very short lived.
Upbeat market sentiment and declining US Treasury yields then kept the pressure on the ‘greenback’ at the end of last week. Although Friday’s better-than-forecast US consumer sentiment survey saw USD post modest gains against some of its rivals.
Coming up, an influx of Fed commentary this week could drive notable USD movement ahead of the Jackson Hole Symposium. The Fed’s annual forum will see policymakers gather to discuss monetary policy, with any dovish tilts likely to weigh on USD. A keynote speech from Fed Chair Powell will also be under close scrutiny this week for hints regarding the timing of any possible Fed rate cuts.
Euro buoyed by USD weakness
A cautiously upbeat market mood limited the safe-haven euro’s movement at the start of last week amid a lack of fresh data.
EUR then faltered on Tuesday as Germany’s latest economic sentiment survey revealed a sharp decline in morale, with the index tumbling to 19.2 this month. However, due to its negative trading relationship with a weakened US dollar, EUR’s losses were limited in scope.
On Wednesday, EUR climbed higher due to ongoing weakness in USD exchange rates, as Eurozone data fell largely by the wayside.
The common currency retreated from previous highs on Thursday as the US dollar recovered from its recent lows.
As the week neared an end, a lack of fresh Eurozone data saw EUR trade without a clear direction against its rivals. Meanwhile, an increasing appetite for risk further stymied EUR movement.
Looking ahead, the Eurozone will publish its own PMI figures later this week. Markets forecast that activity in the bloc’s private sector will have picked up this month after almost stalling in July, potentially lifting the euro in the process.