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18th July - Weekly FX Update

Top Currency Pairs Monday 18th July 9:00 UTC GBP/USD: 1.19458 (Last Week: 1.19668) EUR/USD: 1.01311 (Last Week: 1.01222) GBP/EUR: 1.17912 (Last Week: 1.18223)

Market News

Pound Sterling The Pound Sterling boosted last week with higher GDP growth figures, improving hopes for a UK recession miss. Thursday also saw another vote in the Tory leadership race as Rishi Sunak, Penny Mordaunt and Liz Truss are among the three leading names for the next Prime Minister. Looking ahead, influential economic data for the Pound is in focus this week, where most notably, investors will be keeping a close eye on the unemployment rate on Tuesday, and consumer price index on Wednesday. Unemployment will likely hold steady after rising slightly to 3.8% in the three months to April, and after inflation accelerated to 9.1% last month, it is largely expected to nudger higher to 9.3% in June. If it continues moving, it should increase the odds of a 50bps interest rate hike at the next Bank of England meeting which would be beneficial for the Pound.

Euro This is a big week for the Euro, with major focus on the European Central Bank (ECB) who are set to meet on the 21st July. An interest rate hike looks likely, and with the Euro reaching parity with the US Dollar for the first time since its inception, it adds another headache for the bank. Hiking rates would certainly stop the Euro's decline and fend off inflation, but its economy would suffer. Should the ECB raise rates by 25bps, it may not be enough to propel the Euro forward as other central banks are prepared to act much more aggressively. Another problem Europe face is whether the Nord Stream pipeline will return after being shut down for annual maintenance. It is thought that Russia could weaponise the supply which would place further significant strain on Europes current energy crisis.

U.S. Dollar A spike in US inflation last week prompted markets to raise bets for what potentially may be a 100 bps Federal Reserve (Fed) rate hike at the next FOMC meeting later this month. This dropped the Dollar to parity with the Euro and pushed the GBP/USD exchange rate even lower as markets became unnerved, supporting the Dollar. Should the Fed act as hawkish as expected, it would mark the most aggressive interest rate hike in a very long time. The US Dollar has however opened marginally lower this morning after inflation expectations eased slightly, which would change the 100 bps narrative back to 75 bps. There is little data to move the greenback this week, and Fed members will remain quiet until the meeting, taking place July 26th - 27th.

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