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Pound gains on the day

Pound gains on the day

GBP 
The Pound reached its highest point versus the US Dollar in 10 months on Friday, increasing by 1% after economic data further undermined expectations for more interest rate hikes in the US. After a bad start to last week driven by poor British economic numbers, the Pound is now up almost half a percent in trade-weighted terms, riding out a series of negative headlines on Brexit negotiations with the European Union.

The Pound has taken some support from a round of hawkish signals from Bank of England policymakers last week, and there are still some in the market looking out for a rise in interest rates in the UK next month. While British workers saw their pay fall further behind inflation in the three months to May, wages rose marginally more than had been expected. Unemployment is lower, wages have shown solid signs of improvement over the past three months, and more workers are being added to the market, suggesting that we are not yet at the end of this cycle.

USD

A combination of factors last week kept the Dollar in a defensive sentiment. A fall in consumer price index to 1.6% from 1.9% the previous month, 0.1% below expectations, combined with the 0.2% decline in retail sales from -0.1% the previous month, gave markets doubts over the pace of the Fed’s normalisation.

This week’s data caused the Dollar to decline across the board. Cable broke above the resistance level of 1.3000 and EURUSD closed the week at 1.1470, just shy of the previous high this year set on Wednesday.

The US economic docket is light this week with little to no important data out. Market sentiment will, therefore, be concentrating on events outside of the US that will ultimately have an effect on USD rates.

EUR

There was a lot of talk in the marketplace last week surrounding the European Central Bank’s (ECB) putting an end to quantitative easing. There was further speculation as to whether President Mario Draghi will pull something out of his hat in August when he will attend the Jackson Hole meeting in the US. This will be his first time speaking there in three years.

It was Dollar’s weakness that led the Euro to a fresh 2017 high of 1.1489 versus the US Dollar and 1.1440 against the Pound. This was fuelled by a softer than expected Fed’s Janet Yellen and another round of disappointing inflation figures.

Data To Watch: 
9:00am EUR Consumer Price Index – Core (MoM)(YoY) (Jun), Consumer Price Index (MoM)(YoY)

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