The Pound has retreated in global markets after the Pound to Dollar (GBP/USD) exchange rate failed to hold above 1.30.
The ECB policy decision did not cause any ripples across asset classes with no real reason for markets to shift their expectations of a further cut in September.
US data was mixed with further weakness of a cooling in the labour market offset by a stronger-than-expected manufacturing survey.
The Pound to dollar (GBP/USD) exchange rate retreated to 1.2975 from 1-month highs above 1.3000, although selling was limited.
The Pound to Euro (GBP/EUR) exchange rate also retreated from 23-month highs near 1.1930 to trade around 1.1890.
Scotiabank maintains a positive GBP/USD stance; “Cable weakness back under 1.30 represent a minor setback for the pound. The underlying trend remains favourable and losses should remain limited amid bullishly aligned trend strength oscillators across a range of time frames.”
UK labour market data was in line with expectations as headline annual wages growth slowed to 5.7% in the three months to May from 6.0% previously while the unemployment rate held at 4.4%.
According to Hetal Mehta, head of economic research at St. James’s Place; “The slight decline in wage growth will be welcome to the Bank of England, after the disappointing services inflation yesterday. There is still some key data to come before the August Monetary Policy Report but the decision is very finely balanced.”
US initial jobless claims increased to 243,000 in the latest week from a revised 223,000 previously week which equalled an 11-month high while continuing claims increased to a 6-month high of 1.87mn from 1.85mn.
The Philadelphia Fed manufacturing index improved to 13.9 for July from 1.3 previously and above market expectations of 2.7.
Companies were more optimistic over the outlook and prices are expected to increase at a notably faster rate.
The data continues to suggest a weaker labour market while inflation indicators will cause some concern.
Markets overall remain confident that interest rates will be cut at the September meeting despite political pressure from Trump.
Fed Governor Waller stated that the central bank is getting close to a rate cut.
According to Scotiabank; “Coming from a voting FOMC hawk, that looks like a very clear hint that a September rate cut is a strong likelihood—something that markets already recognize, with a 1/4 point cut almost fully priced in.”
As widely expected, the ECB made no changes to interest rates at the latest meeting with the refi rate held at 4.25%.
According to the bank; “Monetary policy is keeping financing conditions restrictive. At the same time, domestic price pressures are still high, services inflation is elevated and headline inflation is likely to remain above the target well into next year.”
Bank President Lagarde commented, there are still concerns over the level of wage rises and more data is needed before the bank can consider another interest rate cut.
Lagarde added that the September policy decision was wide open.
