The pound’s sharp rise versus the dollar was blunted on Tuesday by reduced risk appetite amid escalating US-China tensions over Taiwan.
Investors are focused on the Bank of England (BoE) policy meeting this week and a potential quickening of the central bank’s interest rate hiking cycle to rein in runaway inflation without exacerbating an economic slowdown.
The UK currency – which had touched a more than one-month high on Monday – slipped lower into the 1.22 range the following day.
The BoE announces its monetary policy decision on Thursday, with investors currently pricing in a 95% chance of a 50 basis point (bps) hike following four consecutive 25 bps moves.
Data from mortgage lender Nationwide on Tuesday showed British house prices increased last month at the slowest monthly pace in a year; a trend that is likely to persist as the cost-of-living squeeze tightens and the BoE continues with rate hikes.
House prices were slightly higher, 0.1% in July compared to June when they rose by 0.2% – the weakest increase since July 2022 and below economists’ forecast for a 0.3% rise.
Robert Gardner, Nationwide’s chief economist noted that the market will slow as pressure on household ramps up in the coming quarters with inflation likely reaching double digits near the end of the year.
Dollar ends losing streak
The dollar was subdued recently by investor bets that the US Federal Reserve will begin to slow its pace of policy tightening soon.
However, the US currency snapped its losing streak against the pound on Tuesday as investors rushed to the safe-haven currency after fears grew that House Speaker Nancy Pelosi’s visit to Taiwan could intensify US-China tensions.
The number of available jobs in the US declined markedly in June, according to fresh data released by the Bureau of Labour Statistics on Tuesday.
Job openings fell to 10.7 million – the lowest level since September 2021 – down from a revised 11.3 million in May, according to the latest JOLTS survey.
Looking ahead
The final July composite PMI reading – spanning services and manufacturing businesses – publishes in the UK on Wednesday. It is forecast to remain unchanged above the expansion threshold.
A clutch of notable data sets for July are also released from the US economy on Wednesday: the S&P Global composite PMI, the S&P Global services PMI, the ISM services PMI, and factory orders.
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