Pound Edges Higher as Markets Brace for Upcoming UK and US Inflation Data
GBP
GBP/USD has risen to 1.2770 (interbank), with GBP/EUR also advancing to 1.1701 (interbank).
The Pound has recovered some ground this morning following last week’s dip.
In a podcast interview with the Financial Times, BoE MPC member Catherine Mann expressed concerns over inflation, stating that goods and services prices are likely to climb further, and wage pressures may persist for years. Despite inflation returning to the 2% target, Mann remains wary of upside risks.
Investors' attention will be on the upcoming UK Employment data for the three months ending in June and July's CPI data, scheduled for Tuesday and Wednesday, respectively. Additionally, the latest GDP figures are set to be released on Thursday.
These data points will be crucial in shaping BoE policy as we head into the autumn, with markets anticipating a delay before the next rate cut. The data will also be monitored closely by Keir Starmer's government, which is hoping for lower interest rates and a boost in economic growth to support public services.
No significant events are scheduled today
EUR
EUR/USD is steady, currently trading at 1.0922 (interbank), after reaching a seven-month high of 1.1009 last week.
On Friday, data revealed that Germany’s HICP rose by 2.6% YoY in July, matching expectations and the previous month's reading.
There is growing speculation that the ECB might end its easing cycle sooner than anticipated, with investors expecting the ECB to reduce its deposit rate quarterly through next year.
However, ECB President Christine Lagarde has indicated that the decision for a September rate cut remains uncertain, while ECB policymaker Olli Rehn noted that rate cuts could continue if inflation trends show signs of slowing soon.
This week’s focus will be on the Eurozone's flash employment, GDP, and inflation figures, set for release on Wednesday.
No significant events are scheduled today
USD
The Dollar Index, which tracks the U.S. dollar against a basket of six major currencies, is largely unchanged at 103.18.
Last week ended on a calmer note, with stronger-than-expected U.S. jobs data on Thursday leading markets to adjust their expectations for Fed rate cuts this year.
However, there is still scepticism among investors about whether the Fed can slow down its rate cuts, with current market pricing reflecting a recession scenario.
This leaves the markets highly sensitive to upcoming U.S. producer and consumer price (CPI) data, which are due on Tuesday and Wednesday this week.
Economists expect both the monthly headline and core CPI to rise by 0.2%, with annual headline and core inflation anticipated to decelerate slightly to 2.9% and 3.2%, respectively.
No significant events are scheduled today
CAD
USD/CAD is currently trading at 1.3727 (interbank), having recently hit a high of 1.3946, the strongest level since October 2022.
Oil prices have steadied, with Brent crude down 0.2% to $79.50 a barrel and West Texas Intermediate crude also declining 0.2% to $78.74 a barrel, amid reports suggesting a potential Iranian strike on Israel.
Last week's Canadian jobs data was mixed, with Statistics Canada reporting a slight decrease in employment by 2.8K in July, while the Unemployment Rate held steady at 6.4%, and Average Hourly Wages increased by 5.2% YoY.
These results have reinforced market expectations for another 25-bps rate cut by the BoC in September.
This week, Canada will release its wholesale trade figures for June on Thursday, followed by the monthly manufacturing survey on Friday.
No significant events are scheduled today
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