GBP
Sterling gained some modest ground last week, notching a third weekly gain in four, however cable remains somewhat trapped in the mid-1.21s.
The BoE’s recent 50bps rate hike has failed to give the pound much in the way of bullish momentum, with concerns over the stagflationary UK economic outlook remaining the market’s primary focus at present.
Said concerns are likely to be heightened by this week’s busy slate of data releases, including the latest employment, inflation, and retail sales reports.
While the labour market is set to remain tight, CPI is expected to accelerate to a new 40-year high just shy of 10%, while retail sales are likely to slow further as the rising cost of living sees consumers continue to tighten their belts.
EUR
The common currency also advanced for a third week in four last week, though was unable to sustain a brief foray north of 1.03, with sellers quickly wrestling back control of proceedings.
With the ECB’s window to tighten policy rapidly slamming shut, further gains for the EUR seem a long shot, particularly with geopolitical risks remaining elevated as war in Ukraine continues.
This week’s calendar is lacking in releases that are likely to be impactful, hence the euro is likely to remain driven largely by external factors.
USD
The greenback continued its recent run of weakness last week, including the DXY falling below 105, to its weakest since the start of last month.
The move comes despite global economic activity continuing to slow, and the Fed remaining one of the most hawkish G10 central banks, both factors which would traditionally lead to a stronger dollar.
Looking ahead, minutes from last month’s FOMC meeting are likely to be this week’s highlight, as the market continues to gauge how high the terminal rate is likely to sit, and the possibility of rate cuts in the second half of next year.
World News
Energy shortages threaten to drive Eurozone inflation to record levels, as risk of a recession looms. In a recent survey the risk of output shrinking for two straight quarters has risen, as the rising cost of living hurts euro-zone households and supply bottlenecks because of droughts hurt businesses.
Fresh Covid outbreaks have hurt The Chinese economic recovery, as it unexpectedly weakened in July. Industrial production did not expand as expected with retail sales also growing at a slower pace. China’s commitment to Covid-Zero has made it tough to sustain much of the economic progress. Chinese Central Bank made a surprise move and cut its interest rate in an attempt to shore up the economy.