Sterling hovered near 1.3550 in early Asian trading on Tuesday, following a brief surge to 1.3570 on Monday that marked a three-month high before quickly giving back all of those gains, leaving the day's net advance at fewer than ten points. This upward push was not a reflection of sterling's own strength, but rather the result of broad-based dollar weakness, as the dollar index slipped below its 200-day exponential moving average to its lowest level since June. The simultaneous rise in the euro and gold underscores that this was a dollar selloff rather than a sterling bid.
The market's breadth on Monday told the story itself. The euro climbed to a two-month high, gold saw active buying, and sterling touched its three-month peak, all occurring in the same afternoon, which is a classic hallmark of one currency being sold off rather than four currencies being simultaneously bid. As of last week, futures markets had already trimmed the probability of a Federal Reserve rate hike in September from a coin flip to roughly one-third, and Monday's price action further digested the remaining expectations. The incremental driver on Monday was geopolitical in nature. A 60-day consultation framework aimed at resolving the Strait of Hormuz dispute expired without an agreement, pushing crude oil up about 3%, while the 30-year Treasury yield broke above 5.31%, reaching its highest level since June 2007. Sterling, which has not seen any first-tier data releases since July 30, contributed no domestic fundamental input during this process.
Tuesday: Labour Data Takes Centre Stage with Mixed Internal Signals
UK labour market data will be published at 14:00 Beijing time on Tuesday, but the internal readings are not aligned. The unemployment rate for the three months to June is expected to improve marginally from 4.9% to 4.8%, while the claimant count change for July is projected to surge from 6.7K to 11.2K, nearly doubling, with the claimant count rate previously at 4.4%. The prior employment change reading stood at 147K. Wage data will directly influence Wednesday's inflation assessment. Regular wage growth is expected to hold steady at 3.4%, while total wages are forecast to ease from 4.3% to 4.1%. With headline inflation converging toward 2.9%, real wage growth stands at only about 0.5 percentage points, which means household pressure stems from energy prices rather than the wage side, a hallmark of this cycle.
Wednesday: CPI Data to Set the Tone for September's Rate Vote
The CPI release at 14:00 Beijing time on Wednesday is the most decisive data point of the week. Headline CPI is expected to rise 0.3% month-on-month, with the annual rate climbing from 2.6% to 2.9%. Core CPI is forecast to ease slightly from 2.6% to 2.5%, while producer output prices are expected to turn from flat to a 0.3% monthly increase. The combination of rising headline and falling core inflation is a textbook signature of imported inflation, which is precisely the type that central banks find difficult to address through rate hikes, as doing so would impose an additional tax on an already slowing economy. The Bank of England's July decision saw rates held steady by a 6-3 vote, following 7-2 in June and 8-1 in April, with the hawkish minority having grown for three consecutive meetings. Markets are pricing in roughly a one-in-four probability of a rate hike on September 17. A 2.9% headline inflation reading would provide support for the dissenters, while 2.5% core inflation hands ammunition to the majority, meaning sterling's reaction on the day of the release may struggle to persist through the week.
Friday: Retail Sales and PMIs Round Out the Week
At 14:00 Beijing time on Friday, retail sales are expected to contract from 1% to -0.3% month-on-month, with ex-fuel retail sales falling from 1.1% to -0.4% and the annual rate halving from 4.2% to 2.3%. The consumer confidence index will be released on Thursday evening, expected to decline from -17 to -18, meaning households receive two readings within 12 hours, with consensus forecasts pointing to deterioration on both fronts. At 16:30 Beijing time on Friday, August flash PMIs are due, with the composite PMI expected to fall from 52.2 to 51.5, manufacturing from 51.9 to 51.5, and services from 52.1 to 51.8. Every UK economic data consensus forecast this week points lower, with the sole exception being the inflation line. This configuration makes sterling difficult to hold and suggests that rate differential-driven buying from the UK side is unlikely to emerge.
The Dollar Narrative Remains in Control
The Federal Reserve will release the minutes from the July 29 FOMC meeting at 02:00 Beijing time on Thursday, which is the only event this week capable of rebuilding the rate premium that the dollar has lost over the past two weeks. The market's focus will be on how closely the remaining committee members align with the three dissenters who favoured a 25-basis-point hike. It is worth noting that these minutes predate the recent soft US inflation data. US flash PMIs are due at 21:45 Beijing time on Friday, with manufacturing expected at 53.8 and services at 54, both slightly below July's readings. Looking further ahead, the Jackson Hole global central bank symposium will take place from August 27 to 29, with the Fed Chair delivering the keynote address on Friday, which is the more likely catalyst for a reversal for anyone shorting the dollar, implying that upside in this currency pair is more of a borrowed position than an owned one.
At 8:24 Beijing time on August 18, GBP/USD was trading at 1.3549/50.