Dollar Weakens, Pound and Euro Gain.

• USD Weakness: The U.S. dollar continues to decline against major currencies as markets anticipate key Fed updates, including potential rate cuts next month and Jerome Powell’s speech at Jackson Hole.
• Pound Gains: The British pound climbs above $1.30 for the first time in over a year, driven by increasing bets on a U.S. rate cut in September, with traders monitoring upcoming UK PMI data for further direction.
• Euro Strength: Eurozone inflation rises to 2.6% in July, pushing the euro to a 9-month high against the U.S. dollar, supported by expectations of Fed rate cuts.
• Global Inflation Dynamics: Core inflation in the Eurozone remains steady at 2.9%, with services driving the highest price increases, while non-energy industrial goods see the lowest inflation rate.
• Eurozone Surplus: The Eurozone’s current account surplus reaches a record €51bn in June 2024, marking a significant year-on-year increase, reflecting economic resilience.

USD: Dollar Dips as Market Awaits Key Fed Moves

The U.S. dollar continued to weaken against major currencies in early Asian trading on Wednesday, with investors eyeing upcoming U.S. payroll revisions and a significant speech by Federal Reserve Chair Jerome Powell on Friday. Traders are also closely monitoring the minutes from the latest Federal Reserve policy meeting, set to be released later today, for insights on a possible rate cut next month. The spotlight will remain on Powell and other Fed officials’ comments during the Jackson Hole Economic Symposium later this week. According to CME Group’s FedWatch Tool, there’s a 73.5% chance of a quarter-point rate cut in September and a 26.5% chance of a half-point reduction. The dollar began its downward trend against major peers on August 15, 2024, slipping to 1.3039 against the pound from Tuesday’s close of 1.3029. The GBP/USD pair may test support near the 1.31 mark. In Asian trading, the dollar also hit an 8-month low of 1.1133 against the euro, down from a recent high of 1.1116, with potential support around the 1.13 area.

GBP: Pound Rises Above $1.30 Amid Fed Rate Cut Speculation

The British pound climbed above $1.30, reaching its highest level in over a year, as markets increasingly bet on a U.S. Federal Reserve interest rate cut in September. Sterling traded around $1.302 on Tuesday afternoon, with traders watching closely to see if it can maintain this upward momentum. The pound hasn’t sustained levels above $1.30 since mid-2022, but recent gains suggest growing confidence that the Fed will reduce rates next month. CME’s FedWatch indicates a 25% chance of a 50 basis point cut. This optimism follows signs that the U.S. economy is slowing, highlighted by rising unemployment figures in early August—the highest in three years—fueling fears that the Fed has delayed rate cuts for too long. This morning, the pound struggled to find a clear direction amid a slow start to the week. Looking ahead, the UK is expected to release preliminary PMI data on Thursday, with the manufacturing index predicted to remain steady at 51.2, while services activity could slightly increase to 52.8. Positive results may boost the pound, but Bank of England Governor Andrew Bailey’s speech at the Jackson Hole Symposium could also influence GBP exchange rates, especially if he hints at future rate cuts.

EUR: Euro Hits 9-Month High on Inflation Surge and Fed Rate Cut Expectations

Eurozone inflation was confirmed at 2.6% year-on-year in July, up from 2.5% in June, pushing the euro to a 9-month high against the U.S. dollar. The slight inflation increase, coupled with anticipation of Federal Reserve rate cuts, drove the euro to its strongest level against the dollar since late December 2023. Core inflation, excluding volatile energy and food prices, held steady at 2.9%, indicating persistent underlying price pressures above the European Central Bank’s 2% target. In July 2024, the main contributors to the annual euro area inflation rate were services (1.82 percentage points), followed by food, alcohol & tobacco (0.45 points), non-energy industrial goods (0.19 points), and energy (0.12 points). Services inflation, accounting for nearly 45% of the harmonized index, stood at 4%, slightly down from 4.1% previously. The lowest inflation was observed in non-energy industrial goods, which rose by just 0.7% annually. Among eurozone countries, Finland (0.5%), Latvia (0.8%), and Denmark (1.0%) had the lowest annual inflation rates, while Romania (5.8%), Belgium (5.4%), and Hungary (4.1%) experienced the highest. In Germany, consumer prices increased by 2.6% compared to July 2023, slightly up from 2.5% the previous month. Meanwhile, inflation in Spain and Portugal slowed, with Spain’s harmonized inflation rate falling from 3.6% to 2.9% and Portugal’s from 3.1% to 2.7%. Additionally, the European Central Bank reported a record €51bn current account surplus for June 2024, up from €38bn in May, with the 12-month surplus reaching €370bn (2.5% of euro area GDP), a substantial rise from €30bn (0.2%) the previous year.