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1st August - Weekly FX Update

Top Currency Pairs Monday 1st August 04:00 UTC GBP/USD: 1.21818 (Last Week: 1.20275) EUR/USD: 1.02250 (Last Week: 1.02263) GBP/EUR: 1.19137 (Last Week: 1.17614)

Market News

Pound Sterling The Pound was stronger last week against the Euro and Dollar with improved sentiment amongst global investors. Sterling moved on risk appetite and was largely dictated by other currencies, with the Euro under pressure relating to energy issues and the Federal Reserve only meeting market expectations with a 75 bps hike amidst data highlighting the US entering a technical recession. Domestically, there is little on the UK's economic calendar, and all eyes will rest on the monetary policy decision made by the Bank of England (BoE) on Thursday. It seems the markets are positioned marginally closer to a 50 bps hike, which would suggest immediate downside risk to Pound Sterling over the next few weeks if the Bank decides on anything less. Sterling has also been very resilient to political risks associated with the race to Prime Minister so far, but it will certainly add to the volatility the Pound will experience this week.

Euro The Euro was hit hard last week following the release of German PMI data for July which confirmed a much sharper than expected economic slowdown. This immediately casted doubts over further interest rate rises as the European Central Bank will likely be very cautious of this rapid cooling in activity. French PMI figures were released at a similar time and were equally disappointing. Surging gas prices are likely to keep the Euro under immense pressure as the Nord Stream gas pipeline was confirmed to run at 20% capacity during a period where European economies look to reload storage for winter. The markets will be keeping a close eye on this in the coming months, and it is likely that the Sterling should appreciate against the Euro given Europe is much more at risk of Russia's gas wars.

U.S. Dollar The Dollar extended its losses last week as the Federal Reserve delivered on market expectations with a 75 bps interest rate hike to between 2.25% and 2.5%, higher than its pre-pandemic level. Jerome Powell offered relief to a downbeat bond market, and slammed the breaks on the U.S. Dollar by stating the size of the next rate increases will be decided by economic data. However, a third consecutive 75 bps hike was not ruled out, reiterating the Fed's fixation on bringing down inflation. GDP figures were also released and shockingly read at -0.9% quarter-on-quarter, marking the second consecutive quarter of negative growth, fulfilling the technical definition of a recession. The news came as a surprise to investors expecting growth, leaving the US in a position of sharp economic slowdown. Some economists have suggested this is more of an accounting quirk than a sign of economic distress.

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