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What’s happening: The GBP/USD forex pair settled lower on Friday, as investors assessed the latest economic data.
What happened: The British pound extended its two-session losing spree on Friday, following the release of the US Personal Consumption Expenditure Price Index.
Strength in the US dollar due to speculations of the Federal Reserve making lower interest rate cuts also exerted pressure on the GBP/USD forex pair.
Why it matters: Data released by the US on Friday showed a key inflation measure coming in-line with market expectations. Personal spending and income rose in July, supporting prospects of the Federal Reserve cutting interest rates by only 25 basis points (bps) this month, rather than by 50 bps as was earlier expected.
US personal consumption expenditures (PCE) price index rose 0.2% in July, in-line with market estimates, after a 0.1% rise in June. The PCE price index rose 2.5% during the 12 months through July. Consumer spending rose 0.5% in July, following a 0.3% gain in June, while personal income rose by 0.3% to $24.015 trillion, compared to a 0.2% rise in the prior month.
Although expectations have declined regarding the extent of the Fed’s rate cuts, markets are fully pricing in the first rate cut in over four years at the September meeting. Investors also expect the US central bank to cut interest rates by around 100 bps by the end of the year.
The UK released data on the net borrowing of mortgage debt by individuals, which rose to £2.79 billion in July and came in higher than market estimates of £2.45 billion. Net mortgage approvals for house purchases rose to 61,985 in July, the highest level since September 2022.
The Bank of England is expected to cut interest rates by 40 bps by yearend, while markets expect the European Central Bank to lower its rates by 65bps in the same timeframe.
Strength in the US dollar weighing on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.4% to 101.73 on Friday.
The GBP/USD slipped around 0.3% to 1.3127 on Friday. The forex pair shed around 0.7% in the week. The EUR/GBP rose around 0.1% to 0.8419 on Friday.
London’s FTSE 100 index slipped 0.04% to settle at 8,376.63 but ended the month in the black for the second month in a row.
What to watch: Investors await the release of manufacturing PMI data from the UK today. Analysts expect the S&P Global UK manufacturing PMI to improve to 52.5 in August, from a reading of 52.1 in the prior month.
Context: European equity markets settled mostly higher on Friday, the last trading session in August.
Details: Inflation rate in the Eurozone eased to a three-year low of 2.2% in August, from July’s reading of 2.6%. The recent figure came in-line with estimates. The Eurozone’s unemployment rate declined to a record low of 6.4% in July, compared to market estimates of 6.5%.
France’s EU-harmonised CPI also eased to 2.2% in August, from 2.7% in July, while Italy’s harmonised CPI eased to 1.3% in August, remaining below the European Central Bank’s target of 2% for the eleventh month in a row.
Data released on Thursday also showed Germany’s annual inflation rate slowing to 1.9% in August, from 2.3% in July. The figure came in below market estimates of 2.1%.
The STOXX Europe 600 Index surged to an intraday record high of 526.66 points during Friday’s session but pared some gains later. Bank stocks settled higher on Friday, with shares UniCredit and Intesa Sanpaolo gaining around 1% during the session.
The pan-European index rose 0.09% to settle above the 525 level for the first time, after recording a sharp selloff at the beginning of August. The index gained about 1.3% last month.
Germany’s DAX 40 slipped 0.03% to 18,906.92, while France’s CAC 40 lost 0.13% to settle at 7,630.95 on Friday.
What to watch: Investors await the release of economic data on manufacturing PMI from the Eurozone today. The HCOB Eurozone manufacturing PMI is expected to decline to 45.6 in August, the lowest level in eight months.
Other Markets: US trading indices closed higher on Friday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.55%, 1.01% and 1.29%, respectively.
Russia’s military forces gained control of two more settlements in eastern Ukraine, namely Ptyche and Vyimka. The news sent the safe-haven US dollar index higher in forex trading this morning.
Australia’s corporate profits fell by 5.3% in the second quarter, following a 2.5% decline in the first quarter. The decline being steeper than market expectations of 0.9% exerted pressure on the AUD/USD forex pair.
Japan’s au Jibun Bank manufacturing PMI came in at 49.8 in August, higher than estimates of 49.5. However, manufacturing activity remaining in the contraction zone sent the JPY/USD pair lower in forex trading this morning.
Taiwan’s S&P Global manufacturing PMI declined to 51.5 in August. This being the softest figure since May exerted pressure on the TWD/USD forex pair.
Thailand’s S&P Global manufacturing PMI slipped to 52.0 in August, from July’s 13-month high of 52.8, which sent the THB/USD pair lower in forex trading this morning.
Russia’s manufacturing PMI, Australia’s commodity prices and CoreLogic home value index, Spain’s tourist arrivals, new car sales and manufacturing PMI, Turkey’s GDP growth rate and manufacturing PMI, Italy’s manufacturing PMI, producer price inflation, new passenger car registrations, and gross domestic product, France’s manufacturing PMI, Germany’s manufacturing PMI, South Africa’s manufacturing PMI, Mexico’s foreign exchange reserves, manufacturing business confidence indicator and manufacturing PMI, Brazil’s manufacturing PMI and Central Bank of Brazil’s focus market readout, Singapore’s manufacturing PMI, as well as South Africa’s total vehicle sales.
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