Market Overview

Last week was dominated by central bank decisions and a heavy run of economic data on both sides of the Atlantic. Both the Federal Reserve and the Bank of England held interest rates steady, though both decisions came with notable dissent from policymakers pushing for hikes, reflecting growing unease about inflation. Meanwhile, fresh eurozone data confirmed that price pressures are creeping back up as energy costs rise again. This week, attention turns to the US labour market, with Friday's jobs report set to be the standout release.

GBP – British Pound

Last Week: The Bank of England held interest rates on Thursday, but the vote was far from unanimous, with three members of the Monetary Policy Committee pushing for an increase amid concerns that higher energy prices could keep inflation elevated for longer. This marked the fifth consecutive meeting without a change in policy. Sterling continued to draw support from the smooth transition of power in Westminster, with new Prime Minister Andy Burnham reassuring markets that he intends to stick to existing fiscal rules, and reports that a fiscally cautious figure is set to take on the role of Chancellor helping to ease earlier concerns about a more expansionary approach to spending.

This Week – Key Data to Watch:

• Construction and Services PMI surveys – these will offer an early look at how UK businesses are performing heading into August, with stronger readings likely to support the pound.
• Ongoing political developments – markets remain watchful for any further announcements from the new government on tax and spending, particularly ahead of the autumn Budget.

EUR – Euro

Last Week: The euro came under renewed pressure as fresh figures showed inflation across the bloc ticking higher, driven largely by rising energy costs linked to the ongoing conflict in the Middle East. Underlying price pressures, which strip out volatile items like food and energy, also nudged upward, suggesting the trend is not solely down to energy. Separately, growth data for the second quarter came in slightly ahead of expectations, offering some reassurance that the eurozone economy is holding up despite the inflationary backdrop.

This Week – Key Data to Watch:

• Services activity surveys (PMI) across Germany and the wider eurozone, providing a further read on business conditions.
• Retail sales and industrial data from Germany and the broader bloc, which will help gauge the strength of consumer spending and manufacturing output.
• With no ECB meeting this week, commentary from central bank officials will be closely watched for hints on the path ahead into September.

USD – US Dollar

Last Week: The Federal Reserve held interest rates steady, but the decision saw a rare split, with three policymakers voting in favour of a hike, underlining growing concern within the committee about persistently high inflation. This was followed by data showing the US economy grew more slowly than expected in the second quarter, while the Fed's preferred measure of inflation remained well above target. Together, the figures painted a picture of a slowing economy still grappling with elevated prices, leaving the central bank with a difficult balancing act.

This Week – Key Data to Watch:

• Job Openings (JOLTS) on Tuesday, offering an early signal on labour market demand.
• The July Jobs Report on Friday – the standout release of the week. Markets will be watching closely for signs of whether hiring is holding up or continuing to slow, as this will heavily influence expectations for the Fed's next move.
• ISM Manufacturing and Services PMI surveys, giving a broader picture of business activity across the economy.

Looking Ahead

With no central bank meetings scheduled this week, the spotlight shifts firmly to economic data - particularly Friday's US jobs report, which is likely to be the single biggest driver of currency moves. Ongoing developments in the Middle East also remain a factor to watch, given their continued influence on energy prices and safe-haven demand for the dollar.

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