GBP

The release of the UK's latest PMI data last week seems to have continued to benefit the pound today, despite comments from Keir Starmer this morning that the government's first budget in October is "going to be painful". This followed last week's higher-than-expected UK government borrowing for July, which stoked fears that Chancellor Rachel Reeves may need to raise taxes in her upcoming budget.

The UK's Manufacturing and Services PMI data both came in ahead of market expectations, with manufacturing coming in at 52.5, a 26-month high and services PMI at 53.3, a 4-month high. The Bank of England's Governor Andrew Bailey commented on the latest data; "This is consistent with a process of disinflation which is steady and more in keeping with a soft landing than a recession-induced process."

Bailey also added that the central bank should be "careful not to cut interest rates too quickly or by too much." His more hawkish comments have fed into markets expecting interest rates to hold steady at the next monetary policy meeting on 19th September, with only a 23.9% chance of a 25-basis point cut.

Continuing its upward trend, sterling has started this week on the front foot again, up 0.28% against the USD and 0.47% against the EUR. GBP/USD rose as much as 0.85% at the end of last week, following dovish comments from the Federal Reserve's Chair Jerome Powell at the Jackson Hole Symposium, which provoked significant selling in the USD. The currency pair is now experiencing two-year highs, which has seen the pound reach its highest level since March 2022 and is currently still above 1.32.

Against the euro, the pound is seeing three-week highs and is sitting just above 1.18

This week is relatively quiet for UK data following Monday's bank holiday, with no notable data events.

EUR

European PMIs came out broadly lower than expected last week. Germany's manufacturing and services PMI fell below forecast by 1.3 and 0.9 points, coming in at 42.1 and 51.4 respectively. In France, the data painted a similar picture in the manufacturing industry, with the PMI coming in 2.3 points below forecast at 42.1, while the services PMI was more favourable at 55.0, 4.8 points above forecast.

On Thursday, the German Preliminary CPI monthly data will be released. Markets currently expect inflation to fall to 2.1% from 2.3% in July. There have been eight CPI inflation releases so far in 2024: six above expectations, one at expectations and one below expectations.

Additionally, on Friday at 10am, the CPI Flash Estimate yearly data is released for the European Union. This is expected to fall from 2.6% to 2.2%. Unlike monthly data, the results for this year have been more varied, with two results above forecasted, four below and three at forecasted.