Market awaits Bank of England interest rate decision

During last week's trading session, the Pound Euro exchange rate experienced a steady climb, supported by weak economic data from the Eurozone and a resurgence in Pound sentiment. Throughout the week, the Pound appreciated by almost 0.9% against the Euro.

Despite facing occasional challenges, the Pound managed to strengthen against the Euro. On Monday, similar to the Eurozone data, UK PMIs fell below expectations due to decreased consumer demand, overstocking, and a sluggish residential property market, accompanied by spending cutbacks. Nevertheless, the Pound continued its upward trend.

On Tuesday, positive industrial trends and business optimism indicators from the Confederation of British Industry (CBI) provided a boost to Sterling. Additionally, an increase in risk appetite favored the Pound over the relatively safe-haven Euro.

Although Sterling's gains were limited midweek due to a lack of significant data, weakness in the Euro prevented major losses for GBP/EUR. However, on Thursday, the Pound plummeted against several other currencies following a dismal distributive trades report.

On Friday, the Pound initially climbed against the Euro, possibly influenced by expectations of a hawkish Bank of England. Despite recession concerns, persistent inflationary pressures compelled the UK central bank to consider further interest rate hikes. However, Sterling faced a decline in the latter half of the day.

Looking ahead to this week's trading, the Pound Euro exchange rate may experience erratic movements due to an abundance of significant data releases from both the UK and the Eurozone. However, the focal point will be the Bank of England's interest rate decision on Thursday.

Market expectations suggest that the BoE will implement its fourteenth consecutive interest rate hike, making investors pay close attention to the accompanying monetary policy statement. A continued hawkish stance from the central bank could strengthen the Pound. Conversely, if recession concerns escalate, GBP morale may weaken.

Moreover, GBP/EUR may be influenced by retail, GDP, and inflation data, as well as Germany's employment report and the dynamics of the US Dollar. If the US Dollar continues to face headwinds due to central bank policy divergence, the Euro may gain strength in comparison.

EUR

Throughout last week, the Euro encountered several challenges, including disappointing economic data and uncertainty surrounding the future plans of the European Central Bank (ECB).

At the beginning of the week, the Euro faced a setback due to weaker-than-anticipated German PMI data. Particularly concerning was the contraction in manufacturing activity, as indicated by the July flash reading.

On Tuesday, the single currency remained subdued as the business climate in Germany deteriorated further. The influential Ifo report, given Germany's prominent role in the European bloc, declined for the third consecutive month, reaching 87.3, below the market's expectations of 88.

During the middle of the week, the Euro struggled to gain momentum against the Pound but managed to register gains against some other currencies. However, its progress was limited by apprehension ahead of interest rate decisions from both the ECB and the Federal Reserve.

On Thursday, the European Central Bank proceeded with its forecasted 25bps interest rate hike but refrained from committing to further rate increases in the future. ECB President Christine Lagarde conveyed this stance to the markets:

As the week drew to a close, the Euro made slight gains against the Pound, possibly bolstered by the weakness of the US Dollar (USD). The core PCE price index matched expectations by falling to 0.2%, signaling easing inflationary pressures and reducing the need for the Federal Reserve to tighten its monetary policy.

USD

Last week, the Pound US Dollar exchange rate experienced significant volatility, fluctuating between an eight-day high and a 17-day low due to changing expectations regarding further Federal Reserve interest rate hikes.

As of the current writing, the GBP/USD exchange rate stood at approximately $1.2860, similar to its starting point at the beginning of the week.

The US Dollar's initial gains against the Sterling were limited as market sentiment remained subdued, and the results from the US PMI surveys were mixed.

However, as the market mood improved and the Fed's decision loomed, the safe-haven US Dollar began to lose ground as the week progressed.

During the middle of the week, the Federal Reserve raised interest rates by 25bps as anticipated. Despite this, the 'Greenback' weakened when Fed Chair Jerome Powell refrained from committing to further interest rate hikes, leading investors to scale back their expectations for more tightening.

However, this downward trend quickly reversed the next day, as robust US data reignited expectations of more Fed action. The US GDP unexpectedly accelerated in the second quarter, and durable goods orders and jobless claims surpassed forecasts.

On Friday, the US Dollar surrendered its gains and ended the week at its opening levels following a larger-than-forecast slowdown in the core PCE price index, the Federal Reserve's preferred inflation gauge.

In the coming week, several high-impact US data releases could contribute to market volatility. The latest ISM PMI surveys, more influential than last week's releases, are due to be published, with forecasters expecting a slight improvement in the manufacturing survey and a modest slowdown in services.

Signs of economic activity slowing down may dampen expectations of further Fed action, potentially weighing on the US Dollar. Conversely, stronger readings could provide support for the 'Greenback'.

The week concludes with the release of the latest non-farm payrolls report and other employment data. Economists predict a decline in the payrolls figure, which, combined with last month's weaker-than-expected numbers, might impact Fed expectations and lead to a drop in the US Dollar.

Similarly, an anticipated decrease in US wage growth may also contribute to the weakening of the Greenback.

Monday

01.30 CNY NBS Manufacturing PMI

01.30 CNY Non-Manufacturing PMI

06.00 EUR Retail Sales

09.00 EUR Core Harmonized Index of Consumer Prices

09.00 Gross Domestic Product

Tuesday

01.45 CNY Caixin Manufacturing PMI

04.30 AUD RBA Interest Rate decision

04.30 AUD RBA Rate Statement

14.00 USD ISM Manufacturing PMI

22.45 NZD Employment Change

22.45 NZD Unemployment Rate

Wednesday

12.15 USD ADP Employment Change

Thursday

01.30 AUD Trade Balance

01.45 Caixin Services PMI

06.30 CHF Consumer Price Index

11.00 GBP BoE Interest Rate decision

11.00 GBP Monetary Policy Summary

11.30 GBP BoE's Govenor Bailey Speech

14.00 USD ISM Services PMI

Friday

01.30 AUD RBA Monetary Policy Statement

09.00 EUR Retail Sales

12.30 USD Average Hourly Earnings

12.30 USD Non-Farm Payrolls

12.30 CAD Net Change in Employment

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