Daily digest market movers: Pound Sterling falls on backfoot
- The Pound Sterling exhibits weakness against its major peers from North America, Europe, and the Japanese Yen (JPY) but is outperforming against Asia-Pacific currencies in Tuesday’s session. The British currency has come under pressure as easing United Kingdom (UK) price pressures have boosted expectations of early rate cuts by the Bank of England (BoE).
- The British Retail Consortium (BRC) showed on Monday that the annual shop price inflation grew 0.2% in June, at the slowest pace since October 2021, decelerating significantly from May’s reading of 0.6%. The agency also reported that food inflation slowed straight for 14 months, declining to 2.5% from 3.2%, and prices for non-food items fell by 1.0% year-on-year, Reuters reported.
- It is worth noting that annual headline inflation, as measured by the Consumer Price Index (CPI), has already returned to the bank’s target of 2%. High inflation in the service sector continues to be a major concern for BoE officials. Policymakers see service inflation as the preferred gauge for price pressures and want it to decline significantly to gain confidence for pivoting to policy normalization.
- Currently, investors expect the BoE to start reducing interest rates at its upcoming meeting in August.
- Meanwhile, the revised estimates for the manufacturing sector showed that factory activities expanded modestly in June. The S&P Global/CIPS Manufacturing PMI report showed on Monday that the factory activity fell to 50.9 from the preliminary reading and the estimates of 51.4. However, it remained above the 50.0 threshold that separates expansion from contraction
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