Sterling had a firm week, supported by hotter than expected UK inflation and a surprisingly strong reading on the services sector, while a broadly softer dollar gave GBPUSD further room to advance. The pound also nudged higher against the euro, as improving eurozone data was not enough to offset a cautious tone from policymakers.
Markets now turn to Jackson Hole, where new Federal Reserve Chair Kevin Warsh delivers his first keynote address on Friday, following a rare three way dissent at the Fed’s July meeting. With the rate outlook this divided, his remarks are likely to set the tone for GBPUSD and GBPEUR into September.
Dollar on the back foot as fiscal concerns persist
The US dollar spent the week under broad pressure, weighed down by renewed concern over the US fiscal position and reports that the Treasury is leaning more heavily on bond buybacks to contain upward pressure on long term yields. With confidence in the currency’s near term direction low, GBPUSD found room to extend its advance, building on gains already in place from earlier in the month.
UK inflation and a services beat keep the Bank of England cautious
UK consumer prices rose 2.9% year on year in July, the fastest pace in four months, with the increase driven mainly by higher energy costs. That kept alive the debate over how long the Bank of England can hold its current stance, particularly after a survey of economists pointed to rates staying unchanged through the rest of the year. The picture became more nuanced later in the week when the flash composite PMI for August showed services activity accelerating well beyond expectations, even as manufacturing eased and the labour market continued to show signs of cooling. Together, the data reinforced a mixed but broadly supportive backdrop for sterling.
A rare three way Fed dissent adds to policy uncertainty
The Federal Reserve held its target range unchanged at its 29 July meeting, but the decision was accompanied by dissent from three regional presidents who pushed for an immediate increase, the widest split on the committee in around two decades. Minutes from that meeting, published mid week, confirmed just how divided policymakers have become over the appropriate pace of further tightening. That uncertainty has left markets unusually reliant on forward guidance from the Fed chair to judge the committee’s next move.
All eyes turn to Jackson Hole
The annual Jackson Hole symposium begins Thursday, but the main event for currency markets is Friday, when Fed Chair Kevin Warsh delivers his first keynote address since taking the role. Given the scale of the recent dissent within the committee, his remarks carry unusual weight, and either a hawkish or dovish tilt could generate a significant swing in dollar sentiment heading into the September meeting. For GBPUSD and GBPEUR, this is likely to be the single most influential event of the week ahead.
The week ahead
- Tuesday: (US) Consumer Confidence, Case-Shiller Home Price Index; (DE) Ifo Business Climate – GBPUSD, GBPEUR
- Wednesday: (US) GDP, second estimate for Q2, Durable Goods Orders, Personal Income and Spending – GBPUSD
- Thursday: Jackson Hole Symposium opens; (US) Wholesale Inventories – GBPUSD
- Friday: (US) Fed Chair Kevin Warsh’s Jackson Hole keynote, Chicago PMI, Michigan Consumer Sentiment (final) – GBPUSD, GBPEUR
With a busy week of UK data ahead, alongside Wednesday’s Federal Reserve minutes, now may be a good time to speak with your currency specialist about how these developments could affect your currency requirements.
