Over the past few weeks, the GBP/USD has been somewhat stagnant, with no clear momentum from either the bulls or the bears. Despite interest rate hikes from the Bank of England (BoE), the pound struggles to find its footing. Several economic indicators point to a fragile UK economy. Increased unemployment rates, a series of business bankruptcies, and declining retail sales figures are alarming. Inflation, while decreasing, still remains at an uncomfortably high level, putting further pressure on the BoE to make decisive monetary policy decisions.
If the BoE appears hesitant in its measures to counter inflation, it might have dire consequences for the pound's value. As for the GBP/USD's current positioning, experts' forecasts are diverse, with oscillators and trend indicators reflecting a mixed sentiment.
The upcoming week holds importance with the release of PMI data for the UK. Like its European and American counterparts, this data will be pivotal in shaping the currency's direction. Additionally, global events like the symposium in Jackson Hole will be closely watched by investors and traders alike.
The EUR/GBP currency pair displayed an upward trajectory, hovering around 0.8550 during the initial trading hours of Thursday's European session. This boost can be attributed to the not-so-promising economic data emanating from the United Kingdom (UK) which came out the preceding day. A key factor in this movement was the S&P Global/CIPS Composite PMI (Aug) preliminary report, which showcased a dip to 47.9, in stark contrast to the earlier figure of 50.8 and lagging behind the projected 50.3. A notable point of concern was the fact that this index dipped below the 50-mark, something which hadn’t occurred since the start of the year.
Simultaneously, the EUR/GBP's momentum might be feeling the pressure from the subdued PMI figures from the Eurozone and Germany. This is evident in a market that treads with caution, given that investors are likely in a state of anticipation, eyeing indicators that might hint at the inflationary direction within the Eurozone.
More specifically, the Eurozone’s HCOB Composite PMI for August registered a fall to 47, which deviated from the anticipated 48.5, and showed a slight decline from the prior 48.6. Germany's PMI data further underpinned this trend, with its Composite PMI sliding to 44.7. This was significantly below the market's predicted 48.3 and marked a decline from July's 48.5.
Recent data, including moderate GDP and inflation figures, have led investors to assign a reduced likelihood of an interest rate hike at the impending September session by the European Central Bank (ECB). Despite this, the UK's underwhelming economic updates propelled the EUR/GBP, reducing the chance of monetary policy adjustments by the Bank of England (BoE).
As the week concludes, all eyes will be fixed on ECB President Christine Lagarde’s address during the Jackson Hole annual symposium. This event could shed light on the prevailing financial and economic milieu. Concurrently, market players will be keenly observing data such as the UK's GfK Consumer Confidence and the Eurozone’s August GDP, aiming to discern further hints concerning inflationary trends in the respective regions.
