26/07/2024
Written by: Ian Morley
Summary:
Following the decrease in UK inflation, the GBP faced ongoing challenges despite Governor Bailey’s mixed remarks later in the day. Notably, there was a significant reversal on GBPEUR, which had reached 2023 highs just a day earlier.
The USD showed marginal weakening in the afternoon, resulting in gains on the EUR. Earlier, EUR GDP for Q4 met expectations, remaining at 0.0% quarter on quarter.
Today’s Speeches:
Our Thoughts:
The UK has been officially declared to be in a technical recession in the second half of last year, with the economy contracting by 0.3% (more than anticipated) in the last quarter. Consequently, markets have adjusted their expectations for BoE rate cuts this year. However, recent PMI numbers suggest a brighter outlook for the UK economy in 2024, as highlighted by Governor Bailey. Nonetheless, in the short term, we anticipate some unwinding of optimism regarding GBP, as markets seek to capitalize on gains made so far this year. Clients interested in purchasing GBP to leverage short-term weakness should reach out to the dealing desk.
The focus for the remainder of the day will be on US retail sales and initial jobless claims, determining whether consumer spending supports the narrative of a resilient US economy. Absent a significant decline in retail sales and/or a surge in jobless claims, we anticipate USD to remain steady, buoyed by Tuesday’s inflation figures.
Analysis:
Earlier this week, GBPEUR reached its highest point since 2023, only to see EUR buyers regain control following higher-than-expected inflation numbers. Today’s GDP figures continue to drive GBPEUR lower, with a potential move back to mid-January levels where the pair may find support once again.