The souring risk sentiment continued yesterday afternoon, with stocks continuing to weaken following the downgrade on US debt by Fitch. ADP payrolls overshot expectations with some gusto coming in at 324,000 versus 190,000 expected, signalling resilience in the labour market. USD was the benefactor of the lower risk appetite and the strong job numbers, with the USD index now at the highest since 7th July. On GBPUSD and EURUSD, the lows seen on the pairs on the 29th June could well be tested.
* Daily move - against G10 rates at 7:30am, 03.08.23
** Indicative rates - interbank rates at 7:30am, 03.08.23
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So following on from the Fed and ECB last week, focus today falls on the Bank of England and whether they join their fellow central banks in signalling that they are near or at the end of their interest rate hike cycle. Peak interest rate expectations from the UK were at 6.5% only a month ago, and since recent data showing signs that inflation could be falling, these expectation have dropped to 5.75% taking the value of GBP down with it. GBP performance going forward will be dictated by the statement the Bank provides. Markets remain 50/50 on whether the Bank will hike by 0.25% or 0.50% today at lunch time.
With the BoE meeting acting as the main course on today's menu, UK and EU services PMIs will be the starter, with US services PMIs served for dessert. These final numbers will be key in measuring the performance of each respective economy in July.
Over the last month, markets have pared the UK’s peak interest rate expectations from 6.50% to 5.75% dragging GBP lower with it. The March uptrend on the GBP index broke in July as a result. A dovish interpretation on today BoE meeting will likely cause markets to scale back rate expectations further, and we could well be seeing more declines on GBP.
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