Home Daily Commentaries Pound rallies while the UK economy grows as expected in Q2

Pound rallies while the UK economy grows as expected in Q2

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.

| Thursday 15 August, 2024

Daily Currency Update

The Euro remained steady despite a softer-than-expected ZEW survey, indicating that the markets had already priced in the release. In Sweden, yesterday's figures showed inflation easing from 2.3% to 2.2%, likely paving the way for the Riksbank to cut rates by 25 basis points at their upcoming meeting. With European inflation continuing to fall, analysts now anticipate the ECB will ease rates by a full 100 basis points before year-end.

In the UK, headline inflation edged closer to the Bank of England's 2% target, with services inflation dropping significantly to 5.2%. Core inflation also declined, from 3.5% to 3.3%. Economists largely agree that the Monetary Policy Committee now has the flexibility to reduce borrowing costs further this year. Consequently, markets expect the Pound to weaken amid softer prices in the UK.

In the US, cooler-than-expected inflation data released yesterday has led markets to increase the likelihood of a 50 basis point rate cut at the Federal Reserve's September meeting. While growth remains stable, the Fed is navigating elevated inflation figures as it balances price pressures with the potential need for lower borrowing costs to support the economy.

Key Movers

The Euro reached a seven-month high against the Dollar yesterday as cooling US inflation caused the Dollar to weaken against both the Euro and the Pound. Supporting this strength in the Euro, Eurostat reported that the Eurozone economy grew by 0.3% in Q2, following a flat reading in the first quarter. On an annual basis, the Eurozone saw growth of 0.6%, further bolstering the single currency overnight.

In the UK, the Office for National Statistics released data this morning showing that the economy grew by 0.9% annually. This positive growth, coupled with easing price pressures, provides some relief for the Bank of England, which has maintained high borrowing costs for an extended period. The Monetary Policy Committee may now feel more confident in taking a more aggressive stance on future interest rate cuts.

Meanwhile, the US Dollar weakened overnight after mixed inflation data indicated that price pressures remain slightly elevated. Inflation rose by 2.9%, down marginally from 3% last month, suggesting that the Federal Reserve is likely to cut rates by 25 basis points at their September meeting. Markets are now focused on upcoming jobless claims and retail sales data from the US, due later today.

 

Expected Ranges

  • GBP/USD: 1.2825 - 1.2875 ▼
  • GBP/EUR: 1.1650 - 1.1700 ▼
  • GBP/AUD: 1.9390 - 1.9440 ▼
  • EUR/USD: 1.0965 - 1.1020 ▼

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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