ACM Update 13-07-26
Sterling continued to enjoy its buoyant spell last week, hitting a fresh 12-month high against the Euro in the process. In the US, the hangover from the June jobs report continued to hamper the Dollar. Both the Federal Reserve and European Central Bank published the minutes from their recent meetings.
This week sees inflation figures from Europe and the US, as well as the May GDP output from the UK. The Bank of England Governor, Andrew Bailey, delivers his annual Mansion House address on Tuesday evening.
GBP continued its recent trend upwards last week. The British currency was supported by several factors, which combined to take GBP-USD to a three-week high, and Sterling-Euro to the best level since late-June 2025.
The recent resignation of Sir Keir Starmer had plenty of possibility to cause weakness for the Pound, but it seems the search for a new PM is likely to be resolved sooner rather than later. Andy Burnham has instantly achieved an overwhelming level of support from Labour MPs, with 322 of 403 of them nominating him to take the helm.
The figure was one shy of the absolute finish line to avoid any other candidates, despite many being unable to vote. This puts him in a position of almost certainty to become the new Prime Minister on 20th July, ending the current limbo period. This provided a major boost to GBP and overall UK sentiment.
Meanwhile the leader of Reform UK, Nigel Farage, announced in a punchy speech he would be resigning as an MP in his Clacton constituency. This triggers a by-election, which Farage stated he would stand in to “give the electorate the chance to stick two fingers up to the entire establishment”.
More Times newspaper headlines emerged about his undeclared finances and the major parties announced they wouldn’t run, leaving Farage to take on Count Binface. British politics everyone…..
Thankfully none of the Clacton shenanigans impacted GBP. Positive economic news did though in the form of an upgraded growth forecast for the UK economy. The IMF opted to up the UK GDP estimate to 1.0% for 2026, from the 0.8% estimate in April. The body endorsed the current policies of Chancellor Rachel Reeves but warned of potential headwinds from the Middle East conflict.
Unfortunately, that is exactly what transpired last week. Renewed hostilities between the US & Iran saw a further uptick in oil prices. These were nothing like the spikes we saw earlier in the conflict but did reprice Bank of England expectations for rate hikes. Markets have now fully priced in a quarter-point rate hike by the end of 2026. This added to the GBP support.
To strengthen the currency’s position, the Bank Governor delivered a talk last week that confirmed a UK interest rate cut was almost completely ruled out for the coming months. Chief Economist, Huw Pill, maintained his calls too that UK interest rates need to rise.
A change of narrative from the Federal Reserve and ECB also offered the British currency a boost, as an alternative holding. More to come on that.
The movement upwards on GBP-USD last week can be seen in the chart below:
US Dollar news was mainly driven by four factors last week. The first was the hangover from the previous Thursday’s jobs report for June, which was considerably short of forecasts. The data suggests further tough times to come for the American economy, especially given other recent downward data revisions.
The re-escalation in the Middle East was also a driver, as the US & Iran exchanged both fire and words. Trump stated the memorandum of understanding was “over” as thoughts quickly turned to how long the conflict could drag on for and the cost to the US. Further oil spikes will also hurt the domestic American economy.
The minutes from Kevin Warsh’s first Fed meeting were also published. The new Fed Chair saw policy held, but the overall sentiment was more hawkish than expected. The majority of policymakers see US interest rates higher than their current position by year end, currently looking towards a September rate hike. There was also an undertone of division amongst the policymakers though, which held the currency back from any major gains.
In the same category, a further Fed report to Congress on Friday described inflation as having “stepped up further this Spring”. This led some Governors to state that their focus is now back on containing inflation, rather than a dual focus on employment. The prospect of higher interest rates offered the Dollar some Friday support.
Across the Atlantic, the ECB minutes delivered a more aggressive stance towards inflation. The committee had delivered a unanimous decision to suppress inflation with a data-driven rate hike. The panel did not see this is an “insurance” move, stating they couldn’t simply “look through” the energy shocks from the Iran conflict.
The potential for further rate hikes was reaffirmed by markets pricing in almost three quarter-point hikes to come during the rest of 2026. Lagarde and her counterparts kept their options open though and stated they would avoid mapping out a premeditated course of consecutive hikes. As for their next meeting in ten days’ time, current expectations are for a 96% chance of a hold in policy.
The potential for oil price spikes is also a cause for nervousness on the continent. With a dependence on oil and imported energy, a growth slowdown and further inflationary spikes would see a slant back towards stagflation again.
However, some economic data was positive. Retail sales for May showed both a positive monthly growth of 0.2% and their biggest gain since June 2025. This held them at 1.6% up year on year, offering some resilience to higher prices. German data performed well, with durable goods orders and industrial production data both offering reasons to be cheerful.
The Euro held firm versus the Dollar, but lost ground slightly over the week versus GBP, as Sterling-Euro nudged up further. The move to a 12-month high can be seen below:
The week ahead:
Monday – BoE Pill speech (19:00), US Federal Budget Balance (19:00)
Tuesday – BoE Bailey speech (09:45), US CPI Inflation (13:30), Fed Warsh testimony (15:00), BoE Bailey speech (21:00)
Wednesday – BoE Pill speech (11:30), US PPI Inflation (13:30), Bank of Canada rate announcement (14:45), Fed Warsh testimony (15:00), ECB Nagel speech (17:00), Fed Beige Book (19:00)
Thursday – UK GDP (07:00), US Retail Sales (13:30)
Friday – EU Final CPI Inflation (10:00), UoM Consumer Sentiment (15:00)
Another strong week for GBP then last week, but how long can that momentum continue for remains the question. Tuesday sees two key speeches from a busy Andrew Bailey, the latter of which being his annual Mansion House address in the City of London. He will be expected to speak on his thoughts for monetary policy in one or both of these, so this could be a Sterling driver.
Chief Economist at the Bank of England, Huw Pill, also speaks on Monday. As mentioned already, Pill have been a major advocate of hiking interest rates in the UK for some time now.
Given the upward revision of UK GDP last week from the IMF, Thursday morning’s release of the latest growth figure for May is important. This is expected to show a 0.1% monthly rise, following the opposing drop in April.
US info will be geared around the CPI and PPI inflation data on Tuesday and Wednesday. The former is expected to have softened slightly from 4.2% to 3.8% when the June figures are released. New Fed Chairman Kevin Warsh will be making appearances in front of both the House and the Senate, whilst the latest US economic data is published in the form of the Fed’s Beige Book on Wednesday evening. Retail sales and consumer sentiment figures are released later in the week.
European news will predominantly be focused on the Friday Final CPI inflation reading for June. This is forecast to show inflation of 2.8% for June. A reading at this level would be good news for the ECB in their battle against price increases but potentially show Euro weakness due to less chance of rate hikes. Watch this space.
Overall, GBP seems to be in the ascendancy against the Euro but holding station against the Dollar. Things can change quickly though, so to discuss securing any pending requirements please get in touch with the Aston team.
Have a great week.
