BUSINESS activity data helped lift the pound to a new 13-month high against the US dollar on Thursday (Aug 22) and kept the euro just shy of a similar peak.
Sterling rose 0.21 per cent to US$1.3129, its highest since July 2023. Should it squeeze past the US$1.3143 hit then, the British currency would be at its highest since April 2022.
The euro was down 0.1 per cent at US$1.1137, on slightly softer eurozone data and slowing wage growth, but still near the US$1.11735 reached on Wednesday, its firmest since July 2023.
Both currencies have been supported in recent weeks by weakness in the dollar as a dovish Federal Reserve and fresh signs of weakness in the US jobs market back the case for interest rate cuts.
Markets are now pricing in more rate cuts from the Federal Reserve by year-end than for the European Central Bank or Bank of England.
But it was developments in Europe that were to the fore on Thursday, with Britain’s composite purchasing managers index (PMI) rising to 53.4 in August, the highest reading since April and above expectations.
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Readings above 50 denote growth. The eurozone composite figure rose to 51.2, also above expectations, though analysts said the number was flattered by a rise in French services activity due to the Olympics.
Data also showed that eurozone negotiated wage growth slowed sharply last quarter, which Bert Colijn, ING’s senior economist for the eurozone, said would pave the way for an ECB rate cut in September.
“The European Central Bank has remained uncomfortable with cutting interest rates while wage growth is elevated. Today’s drop will bring some relief for those looking for a gradual cutting cycle,” Colijn said in a note.
He also said the PMI data would give hawks little reason to object to a September cut.
The dollar was 0.55 per cent firmer against the yen at 146.1, with the rate sensitive currency pair supported by a move higher in US Treasury yields.
That left the dollar index, which measures the greenback against a basket of currencies including the euro, sterling and yen, up 0.2 per cent at 101.34.
The index dipped to 100.92 on Wednesday for the first time this year, softening as markets become more confident the Fed is on track for rate cuts starting in September.
Traders now price in a 30 per cent probability of a 50 basis point (bp) cut at the central bank’s Sep 17 to Sep 18 meeting, and are fully pricing a 25 bp reduction, according to the CME Group’s FedWatch Tool.
But Fed policy maker Jeff Schmid, sounded a cautious tone in Thursday remarks that did not point to a large move.
Rates are not overly restrictive and policy makers have room to consider where to go from here, he said.
Fed chair Jerome Powell will deliver a hotly anticipated speech at the central bank’s annual Jackson Hole symposium on Friday.
Other central bankers, including Bank of England governor Andrew Bailey and ECB chief economist Philip Lane, will also speak at Jackson Hole, while Bank of Japan governor Kazuo Ueda will testify on Friday in a special session of parliament that will scrutinise the BOJ’s decision to unexpectedly raise rates at the end of last month.
Ueda’s hawkish stance helped spur a rapid unwind of bearish yen positions and a violent sell-off in Japanese stocks.
Elsewhere, the Swiss franc was somewhat firmer, with the dollar down 0.16 per cent at 0.8504 francs while the Australian dollar was flat at US$0.6745. REUTERS
