22nd August - Weekly FX Update

Top Currency Pairs Monday 22nd August 04:00 UTC GBP/USD: 1.18292 (Last Week: 1.21193) EUR/USD: 1.00424 (Last Week: 1.02539) GBP/EUR: 1.17792 (Last Week: 1.18213)

Market News

Pound Sterling Pound Sterling is under pressure after last week's trading, especially against the Dollar as it builds on a nascent comeback. The Pound received no help from better than expected economic data last week, as well as higher inflation which has led to a sharp increase in market expectations for the next Bank of England monetary policy meeting, now likely to be 50 bps. UK CPI for July surged to 10.1% YOY, exceeding estimates of 9.8% while the retail sales report increased by 0.3%. The fact that the Pound has not moved higher based on last weeks data is worrying, and may point towards the UK currency heading even lower in the coming months. The highlight of the week is the S&P Global Flash PMI surveys of the manufacturing and services industries for this month, released on Tuesday. This will help shape the market perception on the economic health of the UK and Eurozone.

Euro Recession fears continue to mount in Europe as natural gas prices hit a record high last Thursday, intensifying inflationary pressures. YOY inflation was confirmed at 8.9% for July, significantly higher than the central banks target. Economic growth was also revised lower for Q2 which did not support the Euro, leaving the EUR/USD to once again reach parity this morning which was also due to USD strength and market sentiment. Looking ahead, the focus in Europe will be on the minutes from the last policy meeting due this week, as well as Eurozone flash PMI's due Tuesday.

U.S. Dollar The Dollar gained ground over G10 currencies last week, although it is hard to pin down the exact reasoning behind the Dollar's strength. Solid data however has suggested that the US are likely to miss a recession which would have been a big contributor. Looking ahead, Jerome Powell is set to speak on Friday, which will be the first since the FOMC policy meeting in July. It is expected that Powell will deliver a hawkish message regarding inflation. There is definitely scope for market pricing to shift higher based on the Funds rate, which will further support USD, and the Jackson Hole symposium next week will be at the forefront for Federal Reserve monetary policy guidance over the coming months.

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