USD starts week on the back foot after a slew of weak data. GBP strength continues in the short-term
The geo-political backdrop is back at the fore-front as the Memorandum of Understanding signed between Iran and the US is set to expire on Monday with no signs of a broader deal. USD weakness stems from a broad number of factors, but the new Chair (Kevin Warsh) seems to be insisting on fewer communications - the market doesn’t seem to enjoy the empty stage.
GBP: GBP/USD is heading further northwards - approaching 1.3600 which may prove hard to push through (not seen since early May). GBP/EUR also preforming well - hitting 1.1700 levels last week (not seen since early 2025).
GBP is performing well against major peers mainly because major peers are printing poor data ( alongside disinflationary data) at a faster rate than the UK.
However, there is a ‘disinflation’ story taking hold in the market which comes in the wake of decent GDP alongside slightly slowing wage growth and unemployment rate expected to fall from 4.9% to 4.8%. Wednesday sees CPI Inflation data which is expected to decrease (core level reading of 2.8%). This means that UK rate hike expectations now see the market pricing in just 0.6% of hikes in the next 12mnths. Will this GBP strength carry on in the medium term?
USD: Signs of softer US consumer and producer inflation have dampened the US Federal Reserve rate-hike bets, last Thursday saw US CPI data print lower than expected. US Retail Sales data contracted 0.6% and Consumer Sentiment was also weaker. These are significantly poor data points.
With no major US data released this week, the market will be searching for signs of resilience in the US economy as we decrease expectations of any move in US interest rates through 2026. EUR/USD hit a recent high of 1.1600 this morning - a level not seen since mid-June. All eyes on the release of the central bank minutes released on Wednesday evening.
EUR: Benefitting from a poor USD performance, pushing EUR/USD to 1.1600. The shared currency, rally also draws support from growing acceptance that the European Central Bank will deliver one final 25-basis-point (bps) rate hike at its September meeting as inflation remains above the 2% target. This is widely expected, and likely to conclude the hiking cycle - where will the EURO head after that?
CAD: All eyes on Thursday’s inflation data - in the last 3mnths, USD/CAD has moved from 1.3700 up to 1.4200 and back down to current levels of 1.3850. Anyone with CAD exposure needs to have a strategy in place unless they can tolerate some wild gyrations.
AUD: Hits a 7 week high vs USD, gaining from a weak USD and poor China data this morning.