25th July - Weekly FX Update

Top Currency Pairs Monday 25th July 9:00 UTC GBP/USD: 1.20275 (Last Week: 1.19458) EUR/USD: 1.02263 (Last Week: 1.01311) GBP/EUR: 1.17614 (Last Week: 1.17912)

Market News

Pound Sterling Last week, UK inflation came in at 9.4% (estimated 9.3%), showing prices increasing at the fastest rate in 40 years, driving up the cost of living. This pushed the Pound higher in hope that it forces the Bank of England to act more aggressively. Better than expected employment figures also boosted the UK economy, but the Pound did not take keenly to falling wages. Actual Pay (minus bonuses) was 2.8% lower during the 3 months to May than the previous year, marking a sixth straight decline and the fastest drop since 2001. Looking ahead, Liz Truss (foreign secretary) emerged as a frontrunner to take the vacant Prime Minister role, and the Federal Reserve will likely direct the market with its FOMC meeting tomorrow and Wednesday. The Bank of England will follow next week on 4th August.

Euro On Thursday, the European Central Bank (ECB) hiked rates for the first time in 11 years, surprising markets with a 50bps move to 0%, while also announcing a new bailout tool for indebted nations. The ECB brought an end to 8 years of negative interest rates, with potential for further action over the coming months as Lagarde stated that inflation is expected to stay high for an undesirably long period of time. The week ahead will reveal IFO business climate figures from Germany, with consumer confidence for both the German and French economies. Traders, however, will be focusing on last week's economic data and outlook which will continue to guide the markets, along with the ECB'S new bailout tool. Confidence in Lagarde is certainly wavering, as there are whispers of another "train wreck" for the Euro as we head into winter.

U.S. Dollar Weak economic data weighed on the Dollar last week as US business activity contracted for the first time in close to two years amid a sharp slowdown in the service sector. This receded bets for a 100 bps Federal Reserve rate hike this week, with the favour of pricing now geared towards a 75 bps vote. Moreover, the S&P Global Flash US PMI Composite Output Index fell to 47.5 in July, from 52.3 the previous month. The Dollar lost almost 1% against many G10 currencies following this last week, which marked the fourth monthly drop in a row. All eyes will now be on the Federal Reserve as they make their decision on monetary policy over the next couple of days.

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