GBP
The British Pound has paused after a strong recent run, with Sterling having recorded four consecutive weeks of gains before coming under some pressure this week. UK inflation rose to 2.9% in July, above the Bank of England’s 2% target, while recent labour-market data showed signs of cooling. Despite this, stronger UK business and consumer activity has provided some support for the economy, with markets still considering the possibility of another Bank of England rate increase later this year. Sterling remains relatively well supported, although uncertainty surrounding inflation, interest rates and the upcoming October Budget could create further volatility in the weeks ahead.
EUR
The Euro has received a boost from increasingly positive economic data from Germany, with the eurozone’s largest economy showing signs of recovery. German GDP grew by 0.3% in the second quarter, slightly above the previous estimate, while the latest Ifo business climate index rose more than expected to its highest level since the start of the year. Improving business sentiment, stronger exports and better investor confidence are providing encouragement that Germany’s prolonged period of economic weakness may be coming to an end. However, higher energy prices and ongoing geopolitical risks remain potential headwinds for the Euro.
USD
The US Dollar has strengthened modestly as investors assess renewed geopolitical tensions and the outlook for US interest rates. The Dollar has received some support from increased demand for safe-haven assets following the latest US sanctions against Iran, while markets are also watching developments in the US Treasury market closely. Attention is now turning towards Federal Reserve Chair Kevin Warsh’s upcoming speech at Jackson Hole, which could provide important clues on the future path of US interest rates. With inflation concerns still present and uncertainty surrounding monetary policy, the Dollar is likely to remain sensitive to incoming economic data and Federal Reserve guidance.
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