The week in brief

The main driver of FX markets last week was the sharp deterioration in the US labour market.

US payrolls unexpectedly fell by 23,000 in July, while previous months were revised lower. The unemployment rate remained at 4.1%. The figures raised concerns about the strength of the US economy and reduced expectations that the Federal Reserve will need to maintain a restrictive policy for much longer.

The result was a weaker US Dollar, which provided support for both Sterling and the Euro.

There were also some more positive signs from Europe. The Eurozone Sentix investor confidence index moved into positive territory in August, reaching its highest level in six months. This provided some additional support for the Euro, although Dollar weakness remains the main driver.

For Sterling, falling oil prices have also provided some support. Lower energy costs could help reduce inflationary pressure within the UK economy.

GBP | Pound Sterling

What moved GBP last week?

Sterling's main support came from Dollar weakness rather than a significant change in the UK economic outlook.

The disappointing US jobs report caused investors to reassess the outlook for US interest rates, helping Sterling strengthen.

There have also been signs that the UK economy continues to expand. The latest UK economic figures showed GDP grew by 0.1% in May, with the economy growing 0.7% over the three months to May.

What is coming up?

The key event for Sterling this week is UK GDP on Thursday.

The first estimate of second-quarter GDP will provide a clearer picture of how the UK economy performed between April and June. The figures will be closely watched for signs of whether economic growth is strong enough to limit expectations for further Bank of England rate cuts.

A stronger-than-expected result would provide additional support for Sterling, while a weak figure could bring renewed concerns about UK growth.

US inflation on Wednesday could have an even greater influence on GBP/USD, given the importance of the Dollar to recent currency moves.

EUR | Euro

What moved EUR last week?

The Euro benefited from the same key development as Sterling: a weaker US Dollar.

There were also signs of improving investor confidence across the Eurozone. The August Sentix survey showed sentiment moving into positive territory and reaching a six-month high.

This is encouraging for the Euro, which has faced concerns over relatively weak European economic growth.

The European Central Bank remains cautious on interest rates, meaning incoming economic data will continue to influence expectations for monetary policy.

What is coming up?

The focus this week will be on European growth data, alongside the more important US inflation figures.

The latest ECB assessment showed that Eurozone GDP was flat in the first quarter, although underlying growth was stronger when volatile Irish data was excluded. The ECB also noted that geopolitical developments and the Middle East conflict continue to create uncertainty for the European economy.

Investors will therefore be looking for evidence that European growth is improving rather than weakening further.

EUR outlook: Cautiously positive, supported by Dollar weakness and improving investor sentiment, although European growth remains a concern.

USD | US Dollar

What moved USD last week?

The Dollar came under pressure following the July US jobs report.

The US economy lost 23,000 jobs rather than adding jobs, while earlier employment figures were also revised lower. The revisions made the report more concerning and increased questions over the strength of the US economy.

The implications for interest rates were particularly important for currency markets. If the US economy is slowing, the Federal Reserve has less reason to maintain restrictive policy. Expectations for further tightening therefore fell, putting pressure on the Dollar.

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