Sterling powers on but key data raises questions

The pound hit its best level in two weeks against the euro on Monday and its best in almost a month against the US dollar. Much of that could be explained by traders positioning themselves ahead of a streak of key data that arrives before the week is out.

For sterling, the week’s big event is Thursday’s GDP report, which provides the first snapshot of economic growth across the whole of the second quarter. Equally significant for the US dollar is the inflation report due out tomorrow. That has also taken on greater prominence after a disappointing jobs report last time out, which sent traders scurrying to tweak their interest rate projections.

Markets are also keeping an eye on events in the Middle East. The price of oil ticked up yesterday after weekend reports that President Trump was prepared to admit defeat seemed to lose momentum. Instead, the president refused to engage with Iran’s six demands to reopen the Strait of Hormuz, leading to doubts that the two sides would be able to reach a deal in the near future.

The Japanese yen was the big faller across currency markets yesterday. Having been propped up by intervention from the US government, the yen fell against almost all of its major rivals yesterday, leading to renewed suspicion that the Bank of Japan would have to wade in once more.

Overnight, the Reserve bank of Australia unanimously voted to keep interest rates on hold at 4.35%. The Aussie dollar was seen down slightly against the pound and the US dollar in early trading.