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Sterling clung on to recent gains over the US dollar and the euro ahead of this afternoon's inflation report.
As the UK braces for its fifth heat wave of this long summer, currency markets have had a slow, sluggish start to the week. Sterling has settled in at around its best level in about a month against the US dollar. However, it remains a full cent weaker than the twelve-month best it set against the euro at the end of July.
The tempo picks up this afternoon with the arrival of July’s first estimate of inflation data from the United States. Investors are looking for clarity around the interest rate outlook after some mixed signals recently, while more key reports from both sides of the Atlantic could see the pound move sharply against the US dollar before the end of Friday.
There was a minor fall in the price of oil yesterday, as Pakistani diplomats suggested they were close to broaching an agreement between Iran and the United States that could ultimately precede a ceasefire. However, the relatively small price dip (followed by another pickup overnight) indicated markets have taken that news with a healthy dollop of salt.
Sales of existing US homes came in at an annualised rate of 4.05mn in July, the slowest pace in three months but in line with market expectations. At the same time, the NFIB’s small business confidence index came in at its best score in just shy of a year.
As the summer news cycle slows down, developments that might have seemed minor have greater potential to influence the direction of key currencies. Government borrowing costs are an example of this. Although yields (i.e. the price a government must pay to investors in its debt) fell for both the UK and the USA yesterday, the ongoing energy crisis means that any new developments could feed through to the pound much faster than usual.
GBP: Consumers perk up
UK consumer confidence hit its highest level in almost two years last year, according to Barclays spending survey. Analysts highlighted a host of positive factors, from the England football team’s deep run in the World Cup to cinema spending on summer blockbusters. In a positive sign for the pound, almost a third of respondents said they felt confident about the economy.GBP/USD: the past year
EUR: Watching from the wings
The euro weakened slightly against the pound and the US dollar on Tuesday, as the August quiet period prevented it from gaining much momentum. There are still a few significant reports to look for between now and September, but the euro will mostly be at the mercy of new data from the UK and across the Atlantic.GBP/EUR: the past year
USD: It all comes down to this
Much appears to rest on this afternoon’s US inflation report. A surprise to either the upside or the downside could alter the US dollar’s path and set the scene for the next Federal Reserve meeting. Should the headline inflation rate arrive in or around the expected 3.5%, attention will likely shift to PPI and retail sales figures due on Thursday and Friday respectively.USD/GBP: the past year
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