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Currency Market Update - 17th August 2023

Currency Market Update Pound Sterling is still climbing against The EUR after yesterday’s positive inflation release. Inflation dropped from 7.9% down to 6.8% in the year to July, with the main contributors being a drop in prices for; Energy, Petrol & Diesel, Milk, Bread & Cheese. Keeping inflation relatively high at the moment are the price increases in Hotels & Air Travel. It now looks even more certain that The Bank of England will raise interest rates again next month by 25 basis points, with the peak rate now forecast to reach 6%.

Focus switches to The Federal Reserve now and they had their meeting minutes released yesterday for their July interest rate meeting. All members had voted to raise rates in last month’s meeting but a number of members felt concerned about the immediate knock-on affect to the economy and the jobless rate. The Federal Reserve officials do however see positive signs within the economic outlook, noting that economic activity was expanding at a moderate pace and more importantly, the central bank no longer sees a mild recession at the end of this year. It was again stressed that The Central Bank will be data-led when considering next month’s rate hike, starting with today’s release of weekly jobs data. In June, Fed officials had stated that two additional 25 basis point hikes were required, so it looks like there is room for The Fed to go once more.

We then round the week off tomorrow with July Retail Sales data for The UK, and July inflation release for Europe. Starting with Retail Sales, forecasts suggest a weak release, with figures dropping by just over 1%. If the release is as expected, this could be due to the unusually poor weather we faced in The UK through parts of July. More importantly, any weak release could dampen Sterling’s performance as well as giving The Bank of England something to think about before next month’s meeting.

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