Strong Data Fuels GBP Stability Amid Mixed USD and EUR Movements.

• UK Growth Supports BoE Stability: Strong UK GDP growth reduces the likelihood of a September rate cut by the Bank of England (BoE), with inflation under control and stable policy-making conditions.
• GBP Gains Limited by Q2 Concerns: While growth in April and May was robust, June’s economic stagnation due to pre-election uncertainty capped the British Pound’s exchange rate gains.
• USD Rebounds on Strong Retail Sales: The US Dollar recovered after stronger-than-expected retail sales data for July, easing fears of a hard landing for the US economy and reinforcing expectations of a modest Federal Reserve rate cut.
• GBP/EUR Exchange Rate Weakens: The Pound’s recovery against the Euro faltered due to lower-than-expected UK inflation figures, raising concerns about further declines in GBP/EUR.
• Strategists Predict EUR Strength: ING strategists suggest a likely rise in EUR/GBP above 0.86, implying a potential drop in Sterling below key technical support levels.

GBP: Strong economic growth in the UK is giving the Bank of England (BoE) more confidence to keep interest rates steady, reducing expectations of a rate cut in September. Neil Birrell, Chief Investment Officer at Premier Miton Investors, remarked: “While the second quarter feels distant, the GDP data confirms the UK economy’s resilience. Unlike other central banks, the BoE has the advantage of clear data when making policy decisions. With inflation under control, the path to lower interest rates seems set, with the timing now the main focus.” However, concerns about economic performance at the end of Q2, as growth stalled in June due to pre-election uncertainty, limited the gains in GBP exchange rates.

USD: After a weaker start against the Pound, the US Dollar (USD) rebounded on Thursday afternoon, driven by unexpectedly strong US retail sales data. Last month, US sales growth surged from a downwardly revised -0.2% to 1%, far exceeding the 0.3% forecast and marking the strongest reading since April 2022. The broad-based sales rebound alleviated concerns about a potential hard landing for the US economy and boosted the USD, strengthening expectations that the Federal Reserve might implement a modest 25bps interest rate cut next month.

EUR: The Pound to Euro exchange rate’s recovery from last week’s lows around 1.15 may be losing momentum, with the risk of further declines, according to strategists at ING. The GBP/EUR pair fell from one-week highs on Wednesday after UK inflation data for July came in lower than expected, disappointing in key areas like core inflation and services sector inflation. ING’s Francesco Pesole commented, “We view GBP/EUR as a better play on BoE-related GBP weakness than GBP/USD, where some dollar softness might still provide support. A return above 0.86 in EUR/GBP seems likely,” implying a potential drop in Sterling below 1.1629 against the Euro, which could bring the key support level around 1.1609 into focus.