Sterling consolidated around 1.25 overnight before falling to 1.2453 on negative UK growth data for July released this morning. The euro lost some ground against the greenback, currently trading mid 1.07-1.08, following reports announcing that the ECB expects inflation to remain above 3% next year. USD/JPY continues to grind higher, currently above 147 and AUD/USD falls to hover the 0.64 level.
The UK economy shrank the most in seven months, contracting 0.5% in July, vs. -0.2% estimated by economists and following a 0.5% gain for the month of June. July’s cool and rainy weather held back household spending and strikes among doctors, teachers and rail staff hit the public sector output, causing the nation’s growth to sink.
This is more evidence that the UK economy is slowing down in the face of the current high borrowing costs in place, and it should give the Bank of England policymakers something to digest ahead of the next meeting on the 21St of September and whether to raise interest rates further in their fight against stubborn inflation. Despite BOE’s Governor Andrew Bailey having signalled that the central bank is almost complete on one of the most aggressive tightening cycles since the 1980s, money markets still have priced in another quarter-point increase for the BOE, lifting the benchmark rate to 5.5% with the possibility of further increases by year end.
