France
22 July 2024
Weekly Market Headlines:
- Focus on PMI data: The latest Purchasing Managers Index (PMI) reports for the UK, US, and Eurozone have real potential to move FX rates this week.
- Will the Bank of England cut interest rates next week? The pound could experience increased volatility as the Bank of England meets next week. Markets are now more sceptical about an interest rate cut.
- What does Biden’s resignation mean for markets? Biden has announced he will step down, leading to a closer race between Kamala Harris and Trump.
In Depth: This Week’s Market Update
Last week saw mixed fortunes for the pound, with GBPEUR levels hitting their highest since August 2022 on Wednesday, only to fall by the end of the week. Financial markets also took a step back following a global IT outage. A series of non-economic events, including an assassination attempt on Trump, the IT glitch, and now Biden stepping aside, have lowered stock markets and decreased enthusiasm for the pound in favour of the US dollar.
For the UK, stubborn inflation data last week suggested a lower chance of an interest rate cut by the Bank of England. But, with inflation at the target of 2%, there are growing calls for the UK’s central bank to act. A higher interest rate generally increases interest in buying a currency, while a lower one often leads to a decrease in value.
Looking to this week, markets will debate the fallout from Biden’s resignation and how it might shape the race to the White House. Flash polls indicate Trump would narrowly beat Kamala Harris, suggesting a close race. The US dollar has been sensitive to suggestions that a Trump victory would see US-China trade wars resurface, with changes in risk sentiment strengthening the US dollar.
The PMI data is likely to be the main economic focus of the week, providing markets with a snapshot of Purchasing Managers’ outlooks in the UK, US, and Eurozone. Their scores, ranging from 0 to 100—with anything above 50 indicating growth—could provide important clues about when the Bank of England, the US Federal Reserve and the European Central Bank might start cutting interest rates.
Despite stumbling, sterling is still trading less than one cent below its highest level against the Euro since August 2022. Sterling is also trading near multi-month highs against many other currencies including the US dollar, Australian dollar and New Zealand dollar.
What events might move exchange rates this week?
GBP
- Wednesday: UK Manufacturing & Services PMI
USD
- Wednesday: US Manufacturing & Services PMI
- Thursday: US GDP
- Friday: US Inflation
EUR
- Wednesday: Eurozone Manufacturing & Services PMI
