Sterling slipped against the dollar on Thursday even as UK GDP growth beat expectations for June, because the move was driven by broad dollar strength rather than domestic data. The dollar firmed after this week's in-line US inflation print failed to shift the Federal Reserve's rate outlook, while the euro edged higher against it.
GBP/USD fell 0.01% to $1.3493, while EUR/USD rose 0.08% to $1.1535, as of 06:04 ET. The dollar found broad support from position rebuilding after this week's in-line inflation data.
UK GDP slows but June output surprises
UK GDP growth slowed to 0.4% in the second quarter from 0.6% in the first, though the reading matched economist estimates. Sterling's move was not driven by domestic fundamentals but by broad dollar strength.
June's monthly output rose 0.3% against expectations for a decline, following a flat May and an unrevised 0.1% fall in April. That gives the economy a firmer handoff into the third quarter than the quarterly deceleration implied.
CPI leaves the Fed outlook unchanged
US headline CPI rose 0.1% month-on-month in July with core at 0.2%, both matching forecasts. According to Francesco Pesole, FX strategist at ING: "weakening the case for Fed tightening", even as markets remain reluctant to price out hikes.
Pesole said the dollar's initial dip reflected traders positioned for a hotter print than consensus, but the release did not provide a conclusive answer for front-end rates and FX direction, so the dollar ended the day stronger. Traders now look to next week's FOMC minutes and Thursday's PPI data, with the Fed's Jackson Hole Symposium on 27-29 August seen as the next major catalyst.
Euro holds a bullish bias against the dollar
ING kept a preference for EUR/USD upside, though Pesole said this must be balanced against the risk that renewed escalation in the Gulf could support the dollar. ING's targets remain 1.160 in coming weeks, 1.17 by autumn and 1.18 by year-end, though the pair could stay range-bound absent a clear catalyst, with buyers expected to re-emerge on any test of 1.150.
A shift to ING's bullish EUR/USD view would require confirmation the Fed will hold off on a rate hike, alongside Fed communication turning gradually less hawkish. A de-escalation setback in Strait of Hormuz talks remains the key downside risk for the pair.
Source: Investing.com
Trading involves risk.
Risk Disclaimer
