The Pound Sterling maintained its recovery as the GBP/USD pair hit the 1.2900 mark. Amid the data-dominated week, the GBP/USD pair gained momentum. Driven by UK inflation figures and the US’s latest consumer price index reports, market sentiment towards the upcoming rate cuts by the BoE and Fed is shifting, influencing the GBP/USD pair.

Pound Sterling Buoyed by Robust Economic Data

Last week's mixed UK macro data and diverging monetary policy outlooks between the US Federal Reserve and the Bank of England strengthened the GBP. Annual inflation increased to 2.2%, surpassing the BoE’s 2.0% target but falling short of market expectations of 2.3%. The UK employment data indicated the Unemployment Rate dropped from 4.4% to 4.2% in the quarter to June, defying market expectations of an increase to 4.5%. These Economic indicators have raised speculation around the BoE’s next interest rate decision in September.

US Dollar Fluctuates Due to Domestic Data

The latest US inflation data showed a CPI dropping from 3.0% in June to 2.9% in July. Additionally, a stronger-than-expected recovery in US Retail Sales has eased concerns over a potential US recession.. However, recent dovish comments from Federal Reserve (Fed) officials suggest that the US central bank should slowly reduce borrowing costs, which has boosted expectations for an interest rate cut by the central bank in September.

Impact of Softer US Dollar on NZD/USD:

The New Zealand Dollar appreciates against the US Dollar, influencing the NZD/USD pair after softer inflation and labour reports. However, with rising speculation that the Federal Reserve (Fed) may cut interest rates in September and growing concerns over an economic slowdown, the USD remains under pressure. The upcoming New Zealand Trade Balance data and the People’s Bank of China’s (PBoC) interest rate decision may impact the NZD/USD pair.

Impact of Softer US Dollar on USD/CAD:

After the Fed officials' dovish comments, the USD/CAD moved below 1.3700. Amid investor fears of a US recession, uncertainty surrounding the Federal Reserve Bank's rate cuts could further dampen the pair. The decline in West Texas Intermediate (WTI) oil prices may restrain the commodity-linked Canadian Dollar (CAD) movements, following weaker oil demand from China, the world's top oil importer. Meanwhile, Canada's July Consumer Price Index (CPI) data may significantly influence the USD/CAD pair.

Japanese Yen Rises Amid BoJ's Bullish Stance

The BoJ’s hawkish stance and the vigorous Japanese second-quarter Gross Domestic Product are boosting the Japanese Yen. Recent data indicates that the Japanese economy expanded by 0.8% quarter-on-quarter in Q2, surpassing the market estimation of 0.5%. Another key capital expenditure indicator, Japan’s Machinery Orders, grew by 2.1% month-on-month in June, exceeding the predicted 1.1% rise. However, the upcoming direction of the Bank of Japan’s monetary policy could cause further fluctuations in the Japanese Yen.

Australian Dollar Climbs on RBA’s Hawkish Policy

The hawkish mood surrounding the Reserve Bank of Australia’s monetary outlook and improved risk sentiment amid global tensions have led to continuous upward movement in the AUD/USD pair. The RBA’s commitment to combating inflation and avoiding rate cuts in the future aims to achieve the right balance between controlling inflation and maintaining stability in the current economic climate. Market participants keenly observe the impact of the RBA Meeting Minutes and the People’s Bank of China’s (PBoC) interest rate decision on the AUD.

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