GBP/USD surges, records weekly gain

Today’s headlines

What’s happening: The British pound moved higher versus the US dollar on Friday and recorded weekly gains on strong economic reports.

What happened: The UK economy expanded more than expected, while industrial production surged.

Weakness in the US dollar lent further support to the GBP/USD forex pair.

Why it matters: The British pound has recorded sharp gains against the US dollar this year, gaining around 8.5% year to date.

Data released last week showed that the UK economy expanded by 1.2% year-over-year in the second quarter, easing from 1.3% in the first quarter, but topping market estimates of 1%. The UK economy also grew by 0.4% month-over-month in June, recovering from a 0.1% decline in the previous two months.

Industrial production surged by 0.7% in June, following a 1.3% contraction in May. The figure came in ahead of market estimates of a 0.2% gain.

The Bank of England had recently cut its benchmark interest rate by 25bps to 4%, after a narrow 5-4 vote. This signalled the central bank’s cautious stance on upcoming rate cut decisions, especially in view of persistent inflation.

The greenback fell on Friday, after recording gains in the previous session, as investors remained divided over their expectations of interest rate cuts by the Federal Reserve, following the release of economic reports.

Weakness in the US dollar provided support to the GBP/USD pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.4% to 97.84 on Friday.

The GBP/USD gained around 0.2% to reach $1.3555 on Friday, after surging to a session high of 1.3594 on Thursday, which was the highest since July 7. The forex pair also closed the week higher by around 0.8%.

However, the euro gained versus the pound, rising around 0.3% to 86.36 pence on Friday. The EUR/GBP reached a high of 87.69 pence late last month, its strongest level since May 2023. The forex pair fell around 0.2% last week.

What to watch: Investors will continue monitoring tariff-related announcements from the Trump administration.

Data on UK’s inflation rate and retail price, due to be released on Wednesday, will remain in focus. The annual inflation rate in the UK, which accelerated to 3.6% in June to reach the highest level since January 2024, is expected to rise further to 3.7% in July. Analysts expect the retail price index to rise by 4.5% year-over-year in July, from 4.4% in the previous month.

The markets today

US stocks in focus today ahead of the release of the housing market index

Context: Equity markets in the US closed mixed on Friday, following weak consumer sentiment data.

Details: The S&P 500 settled slightly lower on Friday, after surging to a record high, as investors booked profits after a strong week.

A decline in chip shares and downbeat data on consumer sentiment weighed on the markets. Shares of Applied Materials tumbled 14% on Friday after the company issued weak guidance for the fourth quarter. Nvidia’s shares lost nearly 1% during the session.

The University of Michigan’s consumer sentiment index declined to 58.6 in August, from a reading of 61.7 in the previous month amid inflation concerns.

Meanwhile, retail sales rose 0.5% in July, in-line with market expectations, while the New York Empire State Manufacturing Index surged to 11.9 in August, the highest level since November 2024.

The Dow Jones index gained 34.86 points, or 0.08%, to close at 44,946.12 on Friday. The S&P 500 fell 0.29% to 6,449.80, while the Nasdaq 100 declined 0.51% to settle at 23,712.07.

Despite the broad decline on Friday, the major stock indices recorded gains for the week. Risk sentiment was supported by the latest consumer inflation report which raised speculations of a Fed rate cut in September. The Dow Jones surged 1.74% and S&P 500 added 0.94% last week.

What to watch: Investors await the release of data on NAHB housing market index (1800 UAE Time) from the US today. The NAHB/Wells Fargo Housing Market Index, which rose to 33 in July from 32 in the previous month, is expected to remain at 33 in August.

Markets will also monitor tariff-related announcements and talks between the US and Russia.

Other Markets: European indices closed mostly lower on Friday, with the FTSE 100, DAX 40 and STOXX Europe 600 Index down by 0.42%, 0.07% and 0.06%, respectively, and the CAC 40 up by 0.67%.

The news shaping the markets

Leaders from several European countries announced plans to accompany Ukraine’s President Volodymyr Zelenskyy for his meeting with US President Donald Trump to discuss ending the ongoing war with Russia. The news sent the RUB/USD pair lower in forex trading this morning.

Thailand’s GDP expanded by 2.8% year-over-year in the second quarter, easing from 3.2% growth in the previous quarter. However, the latest reading topping market expectations of 2.5% lent support to the THB/USD forex pair.

New Zealand’s BusinessNZ Performance of Services Index climbed to 48.9 in July, from 47.6 in the previous month, which sent the NZD/USD pair higher in forex trading this morning.

Israel’s economy shrank by 3.5% year-over-year in the second quarter, following 3.4% growth in the first quarter, which exerted pressure on the ILS/USD forex pair.

Singapore’s non-oil domestic exports declined 4.6% year-over-year in July, following a 12.9% surge in the previous month. However, the SGD/USD pair rose in forex trading this morning.

What else to watch today

Spain’s balance of trade (1200 UAE Time), Eurozone’s balance of trade (1300 UAE Time), Germany’s 12-month Bubill auction (1330 UAE Time), India’s unemployment rate (1430 UAE Time), Brazil’s IBC-BR economic activity (1600 UAE Time), Canada’s housing starts (1615 UAE Time) and foreign securities purchases (1630 UAE Time), France’s 12-month BTF auction (1700 UAE Time), 3-month BTF auction (1700 UAE Time) and 6-month BTF auction (1700 UAE Time), as well as US 3-month Bill auction (1930 UAE Time) and 6-month Bill auction (1930 UAE Time).