Eurozone data surprised to the upside yesterday with GDP growth coming in at 0.3% quarter-on-quarter in Q2. Core inflation remained at 5.5% in July, with headline inflation slipping to 5.3%, down from 5.5%. Market pricing for future rate hikes were undeterred by the data and whilst the EUR gained initially, these moves were not sustained, with the EUR broadly finishing lower on the day.
More negative news from China with manufacturing PMIs falling to a six-month low and the sector contracting – another dent to risk appetite.
The RBA elected not to hike interest rates in Australia – another signal that we are coming to the end of the world-wide interest rate hike cycle – AUD weakened as a result.
In another sign that the rate of inflation is falling, prices in UK stores fell for the first time in two years. The BRC reported that annual inflation dropped to 7.6% in July YoY, from 8.4% in June. Food prices rises decelerated for the third time in a row to 13.4%.
* Daily move - against G10 rates at 7:30am, 01.08.23
** Indicative rates - interbank rates at 7:30am, 01.08.23
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Start of a new month and we get straight into the first set of job numbers from the US with JOLTS job openings numbers. Markets are expecting a lower number today which would indicate slowing growth. The extent of any fall will determine how the USD reacts. A gradual fall and the numbers would back recent calls for the US economy to have a soft landing.
The data from the BRC is very timely considering the Bank of England interest rate decision on Thursday. The news of falling inflation would be very welcome by the BoE, and opens up the idea that the Bank will join its peers in signalling that we are near the end of the interest rate hike cycle. A dovish interpretation of Thursday's meeting will signal the market to weaken GBP, and a hawkish interpretation will likely cause GBP to stay near respective highs.
As we grind slowly towards the end of the rising interest rate hike cycle, attentions are now falling on the impact of higher interest rates on respective economies. Over the last 18 months the currency battle has been won by which central bank was perceived to be the most hawkish. Going forward though we now have to look at which economy is going to fare the better than its peers, and perhaps this will indicate which currency will benefit in the coming months. Based on current PMI readings from the US, UK and EU, it would seem that the US economy may well be the fittest.
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