The UK economy faces many issues, including high inflation, labour shortages, potential housing crises, and rising interest rates. The pressing question is whether the economy can overcome these challenges or if it will succumb to stagflation, as forecasted by the National Institute of Economic and Social Research (NIESR). Last week’s GDP figures exceeded expectations with 0.5% monthly growth, 0.2% quarterly growth, and a 0.4% annual gain. However, the pound saw a muted response. This week’s release of UK unemployment data on Tuesday and UK CPI data on Wednesday could sway market sentiment. The pound could weaken if unemployment and CPI surge, indicating movement toward stagflation. Conversely, the sterling may find support if unemployment stabilizes or decreases while inflation moderates as anticipated.
The euro weakened due to geopolitical tensions caused by the conflict in Ukraine, leading to energy concerns. The spike in Liquid Natural Gas prices by 40% due to Australian worker strikes had a limited impact on the euro. However, warnings from Goldman Sachs about the potential for European prices to double or triple this winter could evoke a similar response of euro weakness. The impact of these energy-related challenges on the euro will be a focal point for traders.
The US economy’s steady growth continues with a 2.4% increase in GDP, 3.2% in CPI, and 187k new jobs added in July. The market anticipates the Federal Reserve’s upcoming September decision, likely impacting the economy. A hold on rates could signal the end of the hiking cycle, resulting in a dollar sell-off. Alternatively, it could be viewed as a positive reflection of the US economy, leading to a “soft landing” strengthening the US dollar. The market’s response to the Fed’s decision will likely determine the USD’s short-term direction.
#forex #marketanalysis #usd #cable #eur #gbp #interestrates #inflation #fed #ecb #boe #kes #shilling #kenya