26/07/2024
Written by: Ian Morley
Summary:
Throughout the day, the British Pound (GBP) experienced a sustained weakening following the release of GDP figures, which confirmed the UK’s entry into recession in the latter part of 2023. Chancellor Jeremy Hunt’s remarks suggested pressure on the Bank of England to address the recession, linking it to a target inflation rate of 2% for potential interest rate adjustments. There are indications of political pressure on Governor Bailey to reduce rates ahead of the elections. Meanwhile, the Labour party’s victories in the Wellingborough and Kingswood by-elections dealt a blow to Rishi Sunak and the Conservative party, potentially impacting GBP volatility as elections draw nearer. In the US, the Dollar (USD) faced downward pressure after disappointing January retail sales, although positive job data provided some support. Overnight, central bank statements reflected divergent views, with Fed Bostic adopting a hawkish stance and ECB’s Villeroy leaning towards a dovish approach on interest rates. Scheduled speeches today include ECB Schnabel, BoE Pill, and Fed Barkin, Barr, and Daly.
Market Insight:
UK retail sales surpassed expectations, showing a notable increase of 3.4% in January compared to a 3.2% drop in December, resulting in a rise in GBP. There’s growing interest among GBP buyers, considering more favourable exchange rates following recent economic indicators. Producer price inflation data from the US is anticipated to show a decline to 0.6% from 1% year-on-year. However, given recent trends in Consumer Price Index (CPI) numbers, an uptick in Producer Price Inflation is plausible, potentially benefiting USD gains.
Analysis:
Today, the focus is on US Producer Price Inflation data, with expectations of a 0.1% rise in January. This could reinforce the perception of a slowdown in inflation, offering support to USD.