We saw a very mixed trading session yesterday with USD managing to claw back losses from earlier in the day and GBP managed to erase the losses suffered from Thursday and Friday last week.
*Daily move - against G10 rates at 7:00 am, 02.09.25
** Indicative rates - interbank rates at 7:00 am, 02.09.25
GBP has started the day in the red as 30 gilt yields soared to the highest level since 1998 as markets continue to worry about how Chancellor Rachel Reeves will plug the £51bn fiscal gap. For context, 30-year gilt yields are higher than during the Liz Truss emergency budget. The outlook for GBP continues to be negative with no data this week to give the currency any support.
Inflation numbers are expected to stay around the ECB’s 2% target in this morning's data, which should reinforce the ECB’s cautious stance and should support market pricing for no more rate cuts this year. A number on the downside will be seen as more of a surprise and will likely cause more EUR volatility.
US ISM manufacturing is the highlight for USD with a rebound towards 49 expected from July’s 48 reading. A better-than-expected print in all components will provide some relief for USD and broader risk sentiment and could well ease some of the rate cut expectations by the Fed this year.
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