Currency Note

Steady pound ahead of BoE interest rate decision

By Roseanne Bradley July 31st, 2023

This week, the Bank of England will release its July interest rate, which is due to rise by 25-basis points

After an exciting week of two interest rate hikes from the European Central Bank and the Federal Reserve, the pound starts this week 0.75% up on the euro. It remains largely unchanged against the US dollar ahead of the Bank of England’s interest rate decision on Thursday.

On Friday, the economic sentiment for the Eurozone hit a 9-month low, declining to 94.5 in July, below expectations of 95. This decline follows an aggressive rate-hike policy from the ECB and persistently high inflation.

The German inflation rate eased in July to 6.2%, down from 6.4% in June. This was in line with market expectations and is close to May’s 14-month low of 6.1%.

There was an influx of US data on Friday, as Core PCE prices (which exclude food and energy), rose 0.2% in June 2023 after a 0.3% increase in May. US personal spending rose by 0.5% in June. This was more than the expected 0.4% and reflected over $ 52 billion spent on services. On the other hand, US personal income rose less than forecast, coming in at 0.3% in June, from 0.4% in May.

US stocks ended last week higher, with the Dow Jones adding about 180 points as traders continue to digest fresh corporate figures and economic data.

Today, the Financial Conduct Authority launches the biggest regulatory shake-up of UK retail financial services in an attempt to identify and desist poor customer service and rip-offs by banks, building societies, insurance and investment companies.

Speaking of banks, new data obtained via a freedom of information request revealed that banks are closing more than 1,000 accounts every working day. These figures will add pressure to banks, including NatWest and Coutts.

On the data front, this morning will see Euro Area GDP figures for quarter 2 of 2023, which are expected to expand by 0.3%. While flash inflation is expected to fall from 5.5% in June to 5.3% in July

US economists will be looking out for JOLTs job openings and ISM manufacturing PMI data on Tuesday, ISM services PMI on Thursday, and US unemployment and non-farm payrolls on Friday.

The big data release this week is on our side of the pond as the Bank of England is expected to raise interest rates by 25 basis points on Thursday. This would take the Bank Rate to 5.25% heading into August.

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GBP: Economists await BoE announcement

The pound soared to fresh 2023 highs against the euro and dollar in mid-July before stalling, but the Bank of England’s Thursday interest rate decision could revitalize said rally should a smaller rate hike please investors.

GBP/USD: the past year

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EUR: German retail sales fall

Retail sales in Germany unexpectedly fell 0.8% in June, considerably less than market expectations of 0.2% growth. This was the first decline since March.


USD: Manufacturing sector forecast to expand

Tomorrow, the ISM manufacturing PMI figures for the US are forecast to rise from 46 in June to 48 in July. This would follow a contraction in June as outputs remained softer in Q2.

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