020 7898 0500
The UK was again in the spotlight yesterday as key data kept flooding in. Editorial credit: IR Stone, via Shutterstock.
The UK economy grew by 0.6% in the second quarter of 2024. Although economic growth was flat in June, a strong performance from the services sector (particularly scientific research) helped the UK post its second consecutive quarter of growth over 0.5%.
The euro and the pound continue to perform well against the US dollar. GBP/USD trended slightly upwards yesterday. At the same time, EUR/USD reached its highest since January but the pound’s rotten stretch against the euro was extended by another fall of 0.5%.
On Wednesday, UK and US inflation data contributed to a volatile atmosphere in currency markets. Both reads came in lower than forecast, which was a particular drag on the US dollar ahead of the Federal Reserve’s highly anticipated September meeting.
Headline inflation in the US fell to 2.9% in July – the first time it has come in below 3% since March 2021. Meanwhile, core inflation also sank to its lowest since April 2021 at 3.2%.
Reaction in the US was predictably frenzied. Some commentators said that this represented a ‘goldilocks’ report that markets were after. Others were more measured and continued to predict the Fed would lower interest rates more carefully. Morningstar’s chief US economist did say that he predicted rates would be a whole 2% lower in just a year’s time.
Mixed data from the eurozone couldn’t stop the euro’s charge. GDP growth in the second quarter was unchanged at 0.3% in the second quarter of the year, but industrial production fell by 0.1% month-on-month. That marked a disappointing miss against forecasts of 0.9% growth.
Optimistic inflation data helped ensure it was a good day for US and European stock markets. The S&P 500 and the NASDAQ both rose, while the UK’s FTSE 100 recorded its fourth consecutive day of gains.
Japanese prime minister Fumio Kishida has announced he will step down as leader of the ruling party in September. Kishida has struggled with consistently low poll numbers that have only worsened as the Bank of Japan and the Japanese yen sleepwalked into the centre of a storm.
Make sure any upcoming transactions are protected against the risks of sudden market movements. Secure a fixed exchange rate now with a forward contract; call your account manager on 020 3918 7255 to get started.
GBP: A mixed bag
Whatever optimism the pound drew from the inflation numbers was bittersweet. Despite coming in cooler than expected, price rises still ticked up from June’s 2% to 2.2%. GBP/USD is going strong, yet GBP/EUR has fallen by 2% since last month. More Bank of England rate cuts are not a sure thing just yet.
GBP/USD: the past year
EUR: The interested bystander
The euro is having a fantastic August holiday. EUR/USD reached its highest in 2024 yesterday and the euro isn’t far off matching that against the pound, as its main rivals continue to kick lumps out of each other.
GBP/EUR: the past year
USD: 25bps or 50bps?
After recent data, the question for the Federal Reserve is whether they will cut by 25 basis points (0.25%) or 50 in September. The current consensus remains the former, although there are some shrill voices calling for a larger cut. This uncertainty has not helped the US dollar plug its recent softness.
EUR/USD: the past year
For more on currencies and currency risk management strategies, please get in touch with your Smart Currency Business account manager on 020 7898 0500 or your Private Client Account Manager on 020 7898 0541.
