- The Pound Sterling weakens against its major peers, except the Australian Dollar (AUD) and the New Zealand Dollar (NZD) amid improved speculation that the Bank of England (BoE) will start cutting its key interest rates from the August meeting. Asia-Pacific currencies have been beaten hard due to their strong linkage with China’s economic outlook. Investors have raised concerns over the economic outlook of the world’s second-largest nation due to weaker-than-expected Q2 Gross Domestic Product (GDP) growth.
- The expectations for the BoE to pivot to policy normalization increase as higher interest rates have narrowed pockets of individuals. The recent UK Retail Sales report for June showed that receipts at retail stores unexpectedly contracted by 0.2% year-over-year, which were expected to have grown at a similar pace. Monthly Retail Sales declined at a faster-than-expected pace by 1.2%.
- Meanwhile, expected deceleration in Average Earnings, a key measure of wage growth momentum that prompts inflation in the service sector, has also boosted expectations of BoE rate cuts. Though the wage growth measure has slowed, as expected, in three months ending in May, it is still higher than what needs to be consistent to propel officials’ confidence for rate cuts.
- Going forward, the major trigger for the Pound Sterling will be the UK preliminary S&P Global/CIPS PMI data for July, which will be published on Wednesday. The report is expected to show that the Manufacturing PMI expanded at a faster pace of 51.1 from the former release of 50.9. The Composite PMI is estimated to have increased to 52.6 from 52.3 in May
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