By Ankur Banerjee
SINGAPORE (Reuters) – The pound rose on Thursday on solid British GDP data, and the euro held above $1.10, near the previous day’s seven-month high, supported by data showing slowing U.S. inflation, raising expectations from a subsequent rate cut by the Fed reinforced. month.
Markets were calmer after the recent turmoil, but the pound rose 0.2% against the dollar to $1.2856 after data showed the UK economy grew 0.6% in the second quarter of 2024, in line with economists’ expectations and building on a quick recovery of 0.7% in the first quarter. quarter of the year.
The pound also strengthened against the euro, which fell 0.2% to 85.66 pence.
The European common currency held steady against the dollar at $1.10090, reaching $1.10475 on Wednesday, its highest level this year, as markets tried to digest U.S. inflation data.
It showed that the consumer price index rose moderately, in line with expectations, and that the annual increase in inflation slowed to below 3% for the first time since early 2021.
The data adds to the mild rise in producer prices in July and suggests inflation is on a downward trend, although traders now expect the Fed will not be as aggressive on rate cuts as they had hoped.
The next data point is US retail sales expected at 12:30 GMT on Thursday.
“Monetary easing is certainly coming closer, but the market is putting that in the context of what we saw early last week, when expectations for the Fed changed dramatically,” said Jane Foley, head of FX strategy at Rabobank. .
“Rather than perhaps being excited at the prospect of a move, some are disappointed that we may not get a 50 basis point cut.”
Markets are now pricing in a 64% chance of a 25 bp cut next month and a 36% chance of a 50 bp cut, the CME FedWatch tool showed. Traders were evenly split between the two cut options at the start of the week after last week’s sell-off.
“As the market tries to make sense of the magnitude of the Fed’s rate cuts over the remainder of the year, retail sales will fall apart and we also have Walmart (NYSE:) earnings adding some flavor to the economic data,” Foley said. said.
The yen held steady at 147.21 per dollar after data showed Japan’s economy grew at a faster-than-expected 3.1% annual rate in the second quarter on a solid recovery in consumption, prompting another rate hike was left on the table at short notice.
While the yen has retreated from a seven-month high of 141.675 per dollar during last week’s market chaos, it remains well above the 38-year low of 161.96 it was rooted to in early July.
Interventions from Tokyo early last month and then a surprise rate hike from the Bank of Japan in late July rattled investors who retreated from popular carry trades, sending the yen higher.
The Norwegian krone was little impressed by the country’s central bank keeping interest rates unchanged, standing at 11.783 per euro and 10.695 per dollar.
The Australian dollar rose 0.36% to $0.6620 after data showed Australian employment beat expectations in July, even as the unemployment rate rose to a 2.5-year high. [AUD/]
The strength of labor demand could strengthen the Reserve Bank of Australia’s (RBA) argument that a rate cut is unlikely this year given persistent inflation.
Elsewhere, the greenback weakened against the greenback, which has been plagued by disappointing data showing Chinese factory output growth slowed in July and fell short of expectations. [CNY/]
