UK: Weekly FX Market Update 3 August

GBP

• The Bank of England holds rates steady, and GBPUSD moves higher.

• The Bank expects inflation to peak at 3.2% in Q4 2026.

• BoE Gov Bailey added ‘don’t leave the room thinking the Bank of England is edging towards a rate hike’.

EUR

• Bloomberg reports that EURUSD strengthened last week as the ECB now has more inflation-fighting credibility than the Federal Reserve.

• The Eurozone also has a fiscal position better than the US. Often a precursor to currency strength.

• With US long-term yields (interest rates) now at the highest levels seen since 2007, will investors decide to buy EURUSD again as the US has to pay more for its $39 trillion deficit?

USD

• Fed Chair Warsh appears to leave the market to tighten interest rates (rather than the Fed moving them) in the face of above-target inflation.

• With the Straits of Hormuz still closed & pushing oil prices higher, will inflation jump up again?

• The FT questions the Fed’s inflation-fighting credibility. Can the US$ stay supported in the face of a Fed reluctance to hike rates & joint US$ selling by the Bank of Japan & Federal Reserve. Or will it steadily decline?

Mon Aug 3

15:00 USD ISM Manufacturing PMI/ISM Manufacturing Prices/Construction Spending

Tue Aug 4

13:30 USD Trade Balance

15:00 USD JOLTS Job Openings

Wed Aug 5

15:00 USD ISM Services PMI

Thu Aug 6

10:00 EUR Retail Sales

13:30 USD Unemployment Claims

Fri Aug 7

07:00 EUR German Industrial Production/Trade Balance

13:30 CAD Employment Change/Rate

13:30 USD Unemployment Rate/Non-Farm Employment Change/Average Hourly Earnings