- The pound is hovering around 1.2850 after the release of UK GDP data which came out inline with expectations. The UK economy grew 0.6% in the second quarter suggesting that the outlook remains consistent with a soft-landing scenario. The print follows a 0.7% GDP gain in Q1 representing a steady pace of recovery from last year’s recession. The release is one of the final pieces of this week’s data puzzle ahead of tomorrow’s Retail Sales report and gives few new clues on the path of interest rate cuts from the BoE. A pause at the September meeting seems to be the consensus, with MPC members more likely to announce a 25bp reduction at the November meeting.
- The US dollar is holding steady as markets continue to pare back on the need for aggressive rate cuts from the Federal Reserve after last week’s equity market wobble. Yesterday’s key US data showed that inflation eased for a fourth month on an annual basis in July. Headline yearly CPI came in at 2.9%, below the 3.0% estimate and the yearly core which excludes the volatile food and energy components matched forecasts at 3.2%. The modest decline in price pressures keeps the FOMC on track to cut rates at the September 19th policy meeting. Inflation remains on a downward path and a softening job market have convinced analysts that the Fed can commence its rate cutting cycle – however the size of the first cut will likely be determined by upcoming data releases. Further clues will be anticipated at the annual symposium in Jackson Hole, Wyoming next week, although it currently seems unlikely that rate setters will spook markets by announcing anything larger than a 25bp reduction.
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