After the dovish Bank of England meeting last week, the British pound has been holding its recent gains. In actuality, the BoE’s policy report showed that the bank is preparing to lower interest rates in August. Nonetheless, there is still opportunity for a rise to be fully priced because markets are only 65% priced for this kind of outcome. The Pound may lose some of its previously gained value while this is happening.
Concerns that a new administration will exacerbate the fiscal position in the second-largest economy in the Eurozone are a contributing factor to the ongoing undermining of the Euro due to uncertainty around the results of a snap election in France. Additionally, the flash PMIs that were made public on Friday showed that the Eurozone’s business activity growth slowed down significantly in June, which put additional pressure on the single currency of the region.
The US dollar had a strong start to the week, moving close to its highest levels since early May. Stronger than anticipated PMI figures actually helped the dollar, raising hopes that a robust US economy would allow the Fed more leeway to maintain high interest rates. Primary PCE data is now the focus; it is due this Friday. The reading, which is the Fed’s preferred inflation indicator, will probably have an impact on how interest rates are expected to move.
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