GBP – All eyes on GDP as Labour seeks stability
Sterling continues to hold above 1.3500 against the dollar, supported by USD weakness.
Last week, Prime Minister Sir Keir Starmer has reshuffled his cabinet following the resignation of Angela Rayner, who stepped down as Deputy Prime Minister, Housing Secretary, and Deputy Leader of the Labour Party after admitting she had underpaid stamp duty on a property purchase. An investigation by standards adviser Sir Laurie Magnus found she had breached the ministerial code, prompting a swift response from Starmer to restore confidence.
The reshuffle sees David Lammy move from Foreign Secretary to Justice Secretary and Deputy PM, Yvette Cooper shift to Foreign Secretary, Shabana Mahmood take over as Home Secretary, and Pat McFadden assume leadership of a newly formed “super ministry” as Work and Pensions Secretary. These changes suggest a strategic pivot toward delivery and discipline, which both the UK population and markets will be watching closely.
For FX markets, political uncertainty could undermine sterling, but the real test lies in Friday’s GDP figures. The latest growth data is expected to show the economy flatlining in July. Weaker-than-expected data could continue to challenge the government’s economic narrative and pressure the pound, especially as investors are already questioning the stability of the financial landscape under Labour’s leadership.
EUR – ECB to hold, but forward guidance will steer the ship
The European Central Bank meeting is widely expected to see interest rates remain steady – but markets will be focusing on the underlying messaging. With inflation steady and growth indicators stabilising, the central bank is likely to maintain its current stance. But markets will be parsing every word for clues on the path ahead.
The euro has been relatively range-bound, supported by improving sentiment across the bloc. However, any hint of dovishness, especially in contrast to the Fed’s potential pivot, could weigh on EUR/USD. Conversely, a more hawkish tone could lift the euro, particularly if paired with upbeat commentary on the Eurozone’s recovery.
USD – Weak jobs data fuels ongoing rate cut speculation
Last week’s Non-Farm Payrolls report delivered a surprise: just 22,000 new jobs added, well below the 75,000 forecast. Coupled with an uptick in unemployment to 4.3 per cent, the data has reignited speculation around the Federal Reserve’s rate cuts when it meets next Thursday 17 September.
This Thursday’s CPI release is now front and centre, with forecasts showing a slight increase in inflation year-on-year, from 2.7 per cent to 2.9 per cent. However, if inflation shows signs of cooling, markets may lean further into the idea of a 25bp cut – or even 50bp, if consumer sentiment (due Friday) also disappoints. The dollar has already started to soften, and we’re seeing increased volatility across USD pairs.