The pound recorded its most significant weekly gain against the dollar since May 20th last week. A choppy few days for GBP USD was bookended by two sharp spikes for the pair – lifting it into the 1.20 range on Friday.
On Monday, the UK currency jumped more than 1% against a weakening dollar, boosted by improved risk sentiment as markets scaled back some bets on a supersized Federal Reserve rate hike this week.
The pound shrugged off weak UK economic data on Friday following the release of worse figures from the US.
According to an industry survey, Britain’s businesses recorded their slowest growth in 17 months in July, and inflation pressures eased, potentially deterring the Bank of England (BoE) from pulling the trigger on a significant rate hike in August.
Data from the US on Friday showed business activity contracting for the first time in almost two years in July amid a sharp slowdown in the service sector.
Conservative leadership race in focus for the pound
A data-light week in the UK calendar will shift investor attention to economic pledges from the two remaining contenders in the Conservative Party leadership race.
Foreign Secretary Liz Truss is the current favourite to win the keys to Number 10 ahead of former Chancellor Rishi Sunak.
Looser fiscal policy could encourage economic growth, demonstrating signs of slowing down. Truss pledged to cut taxes immediately by delivering an emergency budget. However, such drastic action could intensify inflationary pressure, with consumer prices already at a four-decade high.
While tax cuts would boost demand, their potential to heat inflation could undermine the BoE’s tightening policy.
A lack of influential data from the UK this week means the British Retail Consortium shop price index on Tuesday and Nationwide housing prices on Friday could get more investor intention than usual.
Fed policy meeting in focus for the dollar
Data-induced dollar weakness could follow from last week before another wave of influential data from the US economy attracted investor attention – including gross domestic product (GDP) numbers on Thursday.
The annualised GDP estimate likely shows the world’s largest economy remained in a precarious position in the second quarter, adding to recessionary fears.
But it’s events on Wednesday that will dominate headlines when US central bank policymakers will likely deliver another 75 basis point increase in their benchmark interest rate to control inflation without damaging the economy.