Sterling faced off against several sources of pressure in Monday’s trading, the most serious of which is the Bank of England’s upcoming interest rate decision. While GBP/EUR climbed by half a cent, the pound struggled to generate real traction against the US dollar and global currencies.
Bank policymakers are expected to vote for a quarter point (0.25%) interest rate cut on Thursday, albeit by a slender margin. Markets must also weigh the risks of the Federal Reserve’s decision, which arrives on Wednesday after the European close.
The Fed are not expected to cut rates but there is growing expectation that they will signal that process to begin in September. Chair Jerome Powell has thus far been exceedingly guarded on his strategy. Could his restraint finally slip?
For the UK economy at least, markets believe that recent data points to an imminent cut. June’s mortgage data did nothing to shake this belief, as the number of mortgage approvals fell month-on-month but overall mortgage debt swelled to £2.65bn from £1.26bn the month prior.
This morning, France’s preliminary read for GDP growth in the second quarter of 2024 came in at 0.3%, slightly ahead of forecasts in the 0.2% area. That takes annualised economic growth to 1.1%, down a shade from the first quarter of the year.
This week is packed with high profile economic figures, along with the aforementioned set pieces by key central banks. Market reactions to those outcomes is likely to be swift and severe, which makes it all the more important to pre-empt those swings by locking in a rate today.
UK chancellor Rachel Reeves used a significant speech in the House of Commons to highlight a £22bn hole in government finances. Setting the scene for the autumn budget on October 30, Reeves said that infrastructure projects and tax levels would have to be rethought as the country needed to make ‘difficult decisions to meet our fiscal rules across spending, welfare and tax’.
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