UK: Weekly FX Market Update 5 August

GBP

• The Bank of England cut rates by 0.25% to 5% last week. The first cut since 14 successive rate hikes started in December 2021.

• Sterling swooned lower despite Capital Economics calling the move a ‘hawkish cut’.

• Bloomberg analysts suggest another UK rate cut to come by year end.

• With Chancellor Reeves discussing tax hikes is this the end of the honeymoon for Labour and the pound?

EUR

• Annual Eurozone CPI was stronger than expected, rising by 2.6% rather than last month’s 2.5%.

• Will this stop the ECB from cutting rates in September as the market had been expecting?

• With the Paris Olympics entertaining, French politics has been largely forgotten - will that focus return after the Olympic closing ceremony on August 11th?

USD

• The Fed keep interest rates on hold last week, however, that didn’t stop some volatility in the US dollar.

• USDJPY fell over 4%, while the US dollar at one point had strengthened 1% against the pound.

• With the Bank of Japan surprising the markets and hiking interest rates, is this the end for the yen carry trade?

• Non-Farm Payrolls were weaker than expected with only 114k new jobs added to the US economy in July.

• Analysts pointed to the Sahm rule being triggered, possibly forecasting a US recession to come.

• Bloomberg analysts suggested a rate cut in September, with the Fed cutting a total of 1% by year end.

Main events for this week:

Mon Aug 5

15:00 USD ISM Services PMI

Tue Aug 6

05:30 AUD Reserve Bank of Australia Interest Rate Decision

Wed Aug 7

15:00 CAD Ivey PMI

Thu Aug 8

13:30 USD Unemployment Claims

Fri Aug 9

13:30 CAD Employment Data