Last week brought more turbulence to currency markets, with the Bank of England’s decision to cut interest rates delivering an unexpected short-term boost to Sterling. The move was widely anticipated, but the relief rally came from the fact that the decision was a narrow one, and policymakers signalled they were not preparing for a series of aggressive cuts. This has been taken as a positive sign by the market, yet caution remains warranted. The broader economic picture for the UK is still fragile, and I don’t view this as the beginning of a significant trend reversal for Sterling.
The volatility was compounded by fresh trade headlines from President Trump. Over the past week, tariffs were announced on India, negotiations with Russia continued, and trade talks with China remained active. August is traditionally a quieter month for markets, but this year the geopolitical calendar is keeping traders on high alert.
Key Events This Week
While there are no major releases scheduled for Monday or Wednesday, the week ahead still holds several potential market-moving events.
Tuesday – US–China Trade Truce Expiry
The truce between the world’s two largest economies is set to expire. Markets will be watching closely to see if the truce is extended or if tariffs are implemented immediately. Should tariffs take effect, we can expect heightened volatility in USD and Gold, with potential safe-haven flows dominating early trade.
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Reserve Bank of Australia Rate Decision – The RBA is expected to cut rates by 25 basis points, which could trigger further weakness in the Australian Dollar.
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UK Labour Market Data – Unemployment is forecast to remain at 4.7%. Any deviation could prompt sharp movements in Sterling.
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US CPI Data – Inflation is expected to rise to 2.8%, a figure that will be closely scrutinised by the Federal Reserve given their current policy stance.
Thursday – GDP Data from the UK & Eurozone
UK GDP is forecast to fall to just 0.1%, down from previous readings, a sign of weakening momentum. The Eurozone’s GDP is expected to remain unrevised at 0.1%. These readings are likely to be Sterling-negative, particularly if the UK figure meets or undershoots expectations.
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US PPI and Jobless Claims – Producer prices are expected higher at 2.5%, alongside the usual weekly jobless claims data.
Friday – US Retail Sales
Retail sales are projected to slow to 0.5%, a softer reading that could weigh on the Dollar and reinforce concerns over the resilience of US consumer demand.
Final Thoughts
This week may lack the volume of high-impact data we often see in other months, but that does not mean markets will be quiet. The expiry of the US–China trade truce, central bank decisions, and inflation and growth data from major economies all have the potential to drive sharp moves. Traders and businesses with currency exposure should remain alert and prepared to act quickly if market sentiment shifts.