Pound Edges Lower, U.S. Dollar Eases as Biden Ends Re-Election Bid
GBP
GBP/USD has declined and is currently at 1.2921 (interbank), after exceeding 1.3000 last week. GBP/EUR is trading at 1.1874 (interbank).
Data from Friday revealed that UK monthly Retail Sales fell more sharply than anticipated, declining by 1.2% in June. Economists had predicted a 0.4% decrease compared to the 2.9% growth in May. The drop in Retail Sales was observed across all sectors except automotive fuel. Retail Sales data is a vital indicator of consumer spending, which influences inflation rates. Weak domestic demand reduces price pressures.
In addition to the significant drop in Retail Sales, Average Earnings decreased as expected in the three months ending in May. However, the current wage growth rate is still higher than what BoE officials need to feel confident about lowering interest rates.
Meanwhile, expectations for persistent consumer inflation have slightly risen as the UK's new Finance Minister, Rachel Reeves, has pledged to consider a wage increase for public sector employees later this month.
The next significant event for the Pound will be the preliminary S&P Global/CIPS PMI data for July, which is set to be released on Wednesday.
No significant events are scheduled for today
EUR
EUR/USD is currently at 1.0883 (interbank), slightly down from yesterday’s peak around 1.0950.
Last week, the ECB maintained interest rates at their current level. ECB President Christine Lagarde did not commit to a specific rate-cut schedule, stating that while Eurozone inflation is on a “disinflationary track,” the ECB still needs to keep rates elevated.
Market expectations for a September rate cut have decreased to 65%, down from 73% before the decision.
The ECB's data-driven approach is likely to support the Euro in the short term. This week's focus will be on the latest PMI figures from the Eurozone.
No significant events are scheduled for today
USD
The Dollar Index, which measures the U.S. dollar against a basket of six major currencies, has edged lower to 104.30 after President Joe Biden announced he will not seek re-election over the weekend.
Biden endorsed Vice President Kamala Harris, who is now expected to face Republican frontrunner Donald Trump in the presidential race.
Biden’s decision increased uncertainty over the upcoming presidential elections, negatively impacting risk-driven markets. Concerns that a potential Trump presidency could lead to more clashes with China also weighed on regional currencies.
Trump was polling ahead of both Biden and Harris, according to CBS data last week. However, Harris is now anticipated to provide a stronger challenge to Trump, particularly as all state Democratic party chairs have endorsed her, and Democratic fundraising surpassed $50 million following Biden’s endorsement.
The dollar had strengthened last week amid speculation about the 2024 election. However, gains in the U.S. dollar remain limited by increased bets that the Federal Reserve will start cutting interest rates from September.
No significant events are scheduled for today
CAD
USD/CAD is currently trading at 1.3743 (interbank).
Last week, Statistics Canada reported a faster-than-expected contraction in monthly Retail Sales by 0.8%, against estimates of 0.6%.
All eyes will be on Wednesday when the BoC will release its next interest rate decision and monetary policy report.
The central bank is expected to cut its policy interest rate to 4.75% in June, with many economists anticipating another quarter-point cut at the upcoming meeting after Canada's annual inflation rate fell to 2.7% last month.
BoC Governor Tim Macklem mentioned last month that further rate cuts are "reasonable" if price pressures continue to ease. Since then, May's inflation data was unexpectedly high, but June's figures, published last week, showed inflation falling to 2.7%.
Additionally, the BoC will publish a new forecast for inflation and economic growth on Wednesday in its quarterly Monetary Policy Report.
No significant events are scheduled for today
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