GBP Holds Steady as BoE Signals Caution; Strong US Growth and Cooling Eurozone Inflation Shape Markets.

• The British Pound may face limited downside as traders expect the Bank of England to maintain higher interest rates longer than the US Federal Reserve.
• The BoE cut rates by 25 basis points to 5% on August 1, with markets anticipating an additional 40 basis points of cuts by year-end.
• The US economy grew at an annualized rate of 3.0% in Q2, exceeding expectations, while Initial Jobless Claims fell slightly below forecasts.
• Federal Reserve’s Raphael Bostic suggested that rate cuts might be necessary due to cooling inflation and rising unemployment but wants more data before deciding.
• Eurozone inflation data from Germany and Spain cooled in August, raising expectations for an ECB rate cut, weakening the Euro, and impacting EUR/GBP.

GBP: The Pound Sterling might see limited downside as traders expect the Bank of England to keep interest rates elevated for a longer duration than the US Federal Reserve. The BoE recently cut rates by 25 basis points to 5% on August 1, and markets are predicting an additional 40 basis points of cuts by year-end. At the Jackson Hole Symposium, BoE Governor Andrew Bailey suggested that the secondary effects of inflation might be less severe than initially thought but cautioned against rushing into further rate cuts.

USD: The US economy grew at an annualized rate of 3.0% in the second quarter, surpassing the expected 2.8% growth. Initial Jobless Claims also dropped to 231,000 for the week ending August 23, slightly better than forecast. Raphael Bostic, the Federal Reserve’s Atlanta President and a key hawk, mentioned that it might be time to consider rate cuts due to cooling inflation and rising unemployment. However, he emphasized the need to wait for confirmation from upcoming jobs and inflation reports before the Fed’s September meeting.

EUR: In the Eurozone, inflation data from Germany and Spain showed further cooling in August, raising expectations for a rate cut by the European Central Bank. This has weakened the Euro and impacted the EUR/GBP pair. ING’s global head of macroeconomics noted that the slowing economy and easing inflation provide a favorable environment for lower interest rates, though service inflation remains a concern. Traders are now focused on the upcoming flash estimate of the Eurozone Harmonized Index of Consumer Prices for August and the July Unemployment Rate to gain more insight into the region’s economic health.

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