UK Economy Expands Faster than Expected; Attention Shifts to U.S. Inflation Data
GBP
GBP/USD has surged and is currently trading at 1.2877 (interbank), marking its highest level since early March. GBP/EUR stands at 1.1868 (interbank), reaching a one-month high.
Sterling gained momentum after this morning’s data revealed that Britain's economy expanded more than anticipated in May.
UK gross domestic product (GDP) grew by 0.4% month-on-month in May, bouncing back from stagnant growth during a rainy April.
The robust economic recovery could deter the BoE from initiating interest rate cuts as early as August 1, its next scheduled monetary policy announcement date.
Chief Economist Huw Pill stated yesterday that the timing of a rate cut remains uncertain, causing market expectations for a rate cut to drop below 50% on the futures markets from just above 50% on Wednesday.
Today’s Events (GMT):
07:00 - GDP (MoM) (May) - Forecast: 0.4% vs Actual: 0.2%
07:00 - Industrial Production (May) - Forecast: 0.2% vs Actual: 0.3%
07:00 - Manufacturing Production (May) - Forecast: 0.4% vs Actual:?? 0.4%
EUR
EUR/USD is currently trading at 1.0850 (interbank), hovering around a one-month high as traders await developments in French politics.
This morning, revised figures for the German Harmonized Index of Consumer Prices (HICP) confirmed a slowdown in price pressures in June. Annual HICP growth moderated to 2.5% from May’s 2.8%. On a harmonised basis, consumer prices rose by 2.5% year-on-year, up 0.2% from the previous month.
Diminished expectations of consecutive rate cuts by the European Central Bank (ECB) have stabilised the Euro’s attractiveness.
Traders are scaling back bets on ECB’s aggressive rate cut trajectory as policymakers hesitate to commit to a specific course. While the ECB remains cautious of reigniting inflationary pressures, they are comfortable with market expectations for additional rate cuts later this year.
Today’s Events (GMT):
07:00 - German CPI (Jun) - Forecast: 2.2% vs Actual: 2.2%
USD
The Dollar Index, which measures the U.S. dollar against a basket of major currencies, has dipped around 0.2% to 104.552, reaching its lowest level since mid-June.
The dollar softened further on Thursday, extending losses after Federal Reserve Chair Jerome Powell reiterated his view on achieving a soft landing for the U.S. economy.
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During his second day of semi-annual Congressional testimony on Wednesday, Powell emphasized that the Fed does not require inflation to drop below its 2% target to commence rate cuts, but rather needs confidence that inflationary pressures are easing.
Focus now shifts to the June CPI release later in the session, where any signs of subdued inflation could increase expectations for a rate cut.
The CME Fedwatch tool indicates a 72.5% probability of a 25 basis points rate cut by the Fed in September.
Today’s Events (GMT):
13:30 - Core CPI (Jun) - Forecast: 3.4%
13:30 - CPI (Jun) - Forecast: 3.1%
13:30 - Initial Jobless Claims - Forecast: 236K
16:30 - FOMC Member Bostic Speaks
CAD
USD/CAD is currently trading at 1.3636 (interbank).
Bank of Canada (BoC) policymakers have adopted a more hawkish tone this month, heightening expectations for a rate hike on July 12.
Last week’s business survey indicated increased optimism among companies regarding future sales and exports, reinforcing expectations of a July rate hike, now with odds exceeding 50%.
The likelihood of a rate hike in July climbed to 57.7% following the survey, up from 51.4% just prior to its release, and significantly higher than the 20% markets had priced in after subdued inflation data last week.
Additionally, Brent crude has risen by 0.7% to $85.74 a barrel, while U.S. West Texas Intermediate (WTI) crude is up around 0.8% to $81.69 per barrel.
Canada has experienced a quiet week on the economic front, with trading expected to remain data-light until next week’s Canadian inflation figures on Tuesday, followed by Retail Sales data the subsequent Friday.
No significant events are scheduled for today
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