UK Economy Stagnates in July, All Eyes on U.S. Inflation Data
GBP
GBP/USD is currently trading at 1.3092 (interbank), while GBP/EUR stands at 1.1851 (interbank).
This morning, UK GDP unexpectedly stagnated for the second consecutive month in July, a setback for the newly-elected Labour government, which has pledged to improve the country’s economic growth. The economy was weighed down by contractions in construction and manufacturing, with only a modest 0.1% rise in the services sector.
These figures come ahead of next week’s BoE monetary policy decision, where markets expect the central bank to maintain interest rates at 5%, following its quarter-point cut in August. Markets anticipate another rate cut in November, as inflation in July rose less than forecast to 2.2%. In the previous two months, UK inflation had reached the BoE’s 2% target.
Additionally, Industrial Production and Manufacturing Production fell by 0.8% and 1.0% respectively in July, surprising markets with weaker-than-expected figures.
Today’s Events (GMT+1):
07:00 - GDP (MoM) (Jul) – Actual: 0.0% vs Forecast: 0.2%
07:00 - Industrial Production (Jul) – Actual: 0.8% vs Forecast: 0.3%
07:00 - Manufacturing Production (Jul) – Actual: -1.0% vs Forecast: 0.2%
EUR
EUR/USD has edged higher and is currently trading at 1.1045 (interbank).
The Euro faced pressure following yesterday’s data showing German inflation dropped to 2% in August, its lowest level since March 2021.
With inflation continuing to ease in the Eurozone’s largest economy, expectations for a rate cut from the ECB have intensified ahead of tomorrow’s decision.
In June, the ECB reduced borrowing costs following a cycle of aggressive rate hikes that started in the summer of 2022. Traders are anticipating a 25-basis-point cut tomorrow, bringing rates down to 4.0%.
Today’s Events (GMT+1):
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10:25 - ECB McCaul Speaks
USD
The Dollar Index, which tracks the U.S. dollar against a basket of six major currencies, has dropped by 0.33% to 101.31, following a rise to a one-week high of 101.77 yesterday.
Yesterday's U.S. presidential debate saw Kamala Harris put Donald Trump on the defensive. Investors are paying close attention to the candidates' fiscal policies and economic plans, though the debate offered few concrete details. Betting markets shifted in Harris' favour after the debate, and her campaign gained further momentum with the public support of Taylor Swift ahead of the 5 November election.
Today, the focus is on the crucial U.S. inflation report, which could provide insight into how aggressively the Federal Reserve might cut interest rates next week. The U.S. Consumer Price Index (CPI) is expected to rise 2.6% year-on-year in August, slowing from July’s 2.9% increase, while core CPI inflation is anticipated to remain steady at 3.2%.
Today’s Events (GMT+1):
13:30 - CPI (Aug) - Forecast: 2.5%
13:30 - Core CPI (Aug) - Forecast: 3.2%
CAD?
USD/CAD is currently trading at 1.3590 (interbank), nearly a three-week high.
Yesterday, Bank of Canada Governor Tiff Macklem highlighted that global trade disruptions could make it harder for the BoC to consistently achieve its 2% inflation target. He also noted that the bank will need to balance the risks of curbing inflation with supporting economic growth, adding that deeper rate cuts may be necessary due to shifting global trade dynamics.
Canada’s inflation rate in July fell to a 40-month low of 2.5%.
Meanwhile, oil prices have recovered from near three-year lows, with Brent crude up 0.5% to $70.10 per barrel, while West Texas Intermediate crude (WTI) is at $66.67 per barrel.
No significant events are scheduled for today
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