The main event on Friday was the core PCE inflation numbers from the US which came in lower than expected illustrating the disinflation story in the US. The employment cost index also came in lower than expected USD weakened as a result and we see equities climb with markets turning risk on with GBP and EUR gaining as a result.
* Daily move - against G10 rates at 7:30am, 31.07.23
** Indicative rates - interbank rates at 7:30am, 31.07.23
Busy week in the diary with US job numbers, RBA interest rate decision, PMI numbers and of course the Bank of England interest rate decision. But ahead of all these, the eurozone is in focus today with GDP and inflation numbers. Already this morning, German retail sales came in lower than expected when compared to the previous month. Last week's ECB meeting saw the Bank change their stance on future monetary policy to one of data dependency causing money markets to lower the probability of another rate hike in September. Lower GDP and lower inflation numbers will likely prove to be negative for the EUR. GBP moves in general seem likely to be muted ahead of the BoE meeting with markets primed for a 50% chance of a 0.50% interest rate hike. But following both the Fed and the ECB switching to a data dependency stance, we could well see the BoE follow suit, which could well prove to be negative for GBP.
Concerns about the economy caused the ECB last week to change their stance on monetary policy and recent PMI numbers illustrate the slowdown and contraction in activity in the services and manufacturing sectors. Could GDP numbers for Q2 come in lower as a result? If so, then we will likely see markets even more concerned about a recession in the eurozone as well as suggestions last week's interest rate hike will likely be the last. If so, the EUR seems likely to weaken.
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