UK inflation figures come in slightly softer than expected
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Daily Currency Update
In Europe, the German economic sentiment indicator (ZEW), a key measure of investor confidence, dropped to 19.2 yesterday. ZEW President Achim Wambach noted that "economic expectations are still affected by a high level of uncertainty, driven by ambiguous monetary policy, sluggish growth in the Eurozone, and ongoing fears about escalating tensions in the Middle East."In the UK, average weekly earnings rose by 5.4%, exceeding the Bank of England’s projection of 5.1%. However, total earnings growth slowed to 4.5%, falling short of expectations by 1.2%. This deceleration in wage growth could give the Monetary Policy Committee more leeway to lower interest rates at their next policy meeting.
A disappointing jobs report in the US has strengthened expectations for the Federal Reserve to cut borrowing costs multiple times this year. Fed Chair Jerome Powell indicated that there is currently a "real discussion" about reducing interest rates at their next meeting, with a 25 basis point cut already fully priced in, and markets assigning a 55% probability of a 50 basis point cut in September.
Key Movers
Economists in Europe remain divided on whether the ECB will implement aggressive rate cuts or adopt a more measured approach. This uncertainty is weighing on the euro. While the European economy saw marginal growth in Q2, Germany, its largest economy, is grappling with reduced demand both domestically and internationally. Most economists agree that inflation is normalizing enough to warrant further reductions in borrowing costs this year, but the key question remains: by how much?In the UK, Consumer Price Inflation (CPI) rose by 2.2%, up from 2% the previous month. Although the reading came in below market expectations of 2.3%, it remains stubbornly high. Members of the Monetary Policy Committee reiterated this morning that the "battle against inflation is not done." In response, the Pound has weakened by over half a percent following the softer-than-expected CPI print.
Later today, the U.S. Bureau of Labor Statistics (BLS) will release crucial CPI inflation data. Markets are anticipating a 2.9% increase, down from the previous 3%. This figure will be closely scrutinized as it will influence expectations regarding the scope and timing of future interest rate cuts in the U.S. It is also expected to significantly impact volatility in the U.S. Dollar and broader financial markets.
Expected Ranges
- GBP/USD: 1.2800 - 1.2870 ▲
- GBP/EUR: 1.1645 - 1.1690 ▲
- GBP/AUD: 1.9310 - 1.9365 ▲
- EUR/USD: 1.0965 - 1.1035 ▲