UK Shop Prices Drop, Fed Signals Adjustments, and Eurozone PMIs Send Mixed Signals.

• The U.S. Dollar is under pressure due to expectations of a Federal Reserve rate cut in September, driven by a slowing economy.
• Signs of weakening consumer demand and a cooling job market contribute to the Dollar’s depreciation against major currencies.
• The Euro is strengthening against the Dollar, supported by positive Eurozone economic indicators and a growing current account surplus.
• The Eurozone’s economic recovery is outpacing the U.S., making the Euro more attractive to investors.
• The British Pound is facing mixed outcomes, with recent gains tempered by the Bank of England’s rate reduction and the UK’s large current account deficit.

GBP: The BRC Shop Price Index fell by 0.3% year-on-year in August compared with the previous increase of 0.2% in July. British shop prices fell in annual terms this month for the first time since October 2021, pushed down by summer sales of clothes and household goods. UK Prime Minister Keir Starmer stated last week that addressing Britain’s numerous challenges will take time, warning that “things will get worse before they get better” in a speech he described as an opportunity to be candid with the public. As Britain’s parliament returns to work after the summer break on Tuesday, Starmer may emphasize that “change won’t happen overnight,” but his government is committed to tackling a wide range of issues, from overcrowded prisons to long waiting lists for health services.

USD: The US Federal Reserve Chairman Jerome Powell stated at the Jackson Hole Symposium on Friday, “The time has come for policy to adjust.” However, Powell did not specify when rate cuts would begin or their potential size. According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point rate cut by the Federal Reserve at its September meeting. In July, US Durable Goods Orders unexpectedly rose by 9.9% month on month, surpassing the forecast of 4.0% and reversing the previous month’s revised -6.9% contraction. However, concerns persist as excluding transportation spending, Durable Goods Orders actually decreased by -0.2% month on month, worse than the anticipated 0.0% and the previous month’s 0.1%, which was revised down from 0.5%.

EUR: The Euro was subdued on Thursday as EUR investors digested some mixed PMIs from the Eurozone. August’s preliminary figures reported that activity in the bloc’s private sector outpaced expectations. The composite climbing from 50.2 to 51.2 against forecasts it would drop to 50.1. However, this uptick in activity was very one sided as while the services PMI rose from 51.9 to 53.3, the manufacturing PMI slipped from 45.8 to an eight-month low of 45.6. Analysts were also quick to point out that the surprise strong uptick in service sector activity is likely linked to France’s hosting of the Olympics and therefore will be temporary. The PMIs also highlighted an easing of cost pressures in the private sector, which increases the chances of the European Central Bank cutting interest rates again in September.

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