Home Daily Commentaries Markets in Limbo Awaiting key UK and US Inflation Data

Markets in Limbo Awaiting key UK and US Inflation Data

Conor Fleming
Written by
Conor Fleming

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor spearheads initiatives to encourage businesses in Germany, Switzerland, and Austria to hedge their foreign currency risks with OFX.

| Tuesday 23 July, 2024

Daily Currency Update

Yesterday, the Bundesbank in Europe indicated that strong wage growth is complicating efforts to return inflation to their 2% target. They advised caution regarding additional interest rate cuts. The Bundesbank also pointed out that a robust labour market and geopolitical risks, especially those affecting global supply chains, are currently significant factors in the market, presenting a mixed outlook for the ECB.

In the UK, after British inflation surpassed forecasts last week, markets have slowed the anticipated rate and extent of interest rate cuts by the Bank of England. The Pound is trading strongly, with "long positions" reaching a record high of £10.769 billion. This situation poses a risk of the Pound retracting from current levels as market positions may be unwound. Additionally, the UK benefits from a more stable political environment compared to Europe and does not require as stringent fiscal discipline as EU nations.

Joe Biden's withdrawal from the White House race was anticipated, but Kamala Harris's entry has introduced uncertainty regarding Donald Trump's position as the Republican nominee. Markets have priced in a potential US interest rate cut for September; however, a closer-than-expected election race could alter these expectations. The Dollar remains at multi-week lows against both the Euro and the Pound.

Key Movers

In Europe, ECB council member Luis de Guindos stated that "inflation data is practically in line with our projections." He added that it is prudent to wait until September to set interest rate policy due to the current high levels of uncertainty and emphasized the need to closely monitor wage inflation developments. However, he noted that geopolitical risks, which are increasing globally, are a greater concern than inflationary pressures.

The Pound held steady yesterday as markets anticipate the PMI (Purchasing Managers' Index) data due tomorrow. Markets expect the data to show a slight increase from 52.1 last month to 52.5, and this has largely been priced in. If the number exceeds expectations, the Pound could attract renewed buying interest as markets might further discount the possibility of rates remaining higher for longer in the UK.

Similarly, the US will also release PMI data tomorrow, with a slight increase expected from 52.8 to 53. On Thursday, the second-quarter GDP data will be released, followed by the crucial inflation data, the PCE indicator, on Friday. These key data releases will influence the direction of the US Dollar moving forward.

 

Expected Ranges

  • GBP/USD: 1.2865 - 1.2925 ▼
  • GBP/EUR: 1.1845 - 1.1895 ▼
  • GBP/AUD: 1.9460 - 1.9510 ▼
  • EUR/USD: 1.0850 - 1.0910 ▼

Written by

Conor Fleming

OFXpert

With 30 years of experience in the foreign exchange world, Conor first embarked on his financial career journey as a trainee dealer in BNP Paribas in the early 90s. His professional journey also took him to New York, where he assumed the role of Head of Sales with an Irish bank for a few years. During his tenure at both banks, he was invited to several interviews on Irish television to discuss market turbulence, the factors driving volatility and insights into what could be expected as events unfolded.

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