Authors: Kevin Buckland and Alun John
TOKYO/LONDON (Reuters) – Business activity data helped the pound hit a fresh 13-month high against the dollar on Thursday and kept the euro just below a similar peak, with relevant U.S. data and jobless claims data due later in the day.
The pound rose 0.21% to $1.3129, its highest level since July 2023. If it manages to break through $1.3143 then, it would be its highest level since April 2022. [GBP/]
The euro fell 0.1% to $1.1137 on slightly weaker euro zone data and a slowdown in wage growth, but is still close to the $1.11735 level reached on Wednesday, its highest since July 2023.
Both currencies have benefited from dollar weakness in recent weeks as a dovish Federal Reserve and fresh signs of weakness in the US labor market support a rate cut.
Markets are currently pricing in more rate cuts from the Federal Reserve than from the European Central Bank or the Bank of England by the end of the year.
But it was events in Europe that were the main story on Thursday. Britain’s PMI rose to 53.4 in August, its highest since April and exceeding expectations.
Readings above 50 indicate growth. The eurozone’s aggregate rose to 51.2, which also beat expectations, although analysts said the figure was boosted by a boost in services activity in France due to the Olympics.
The data also showed that growth in negotiated wages in the eurozone slowed significantly in the last quarter, which Bert Colijn, senior eurozone economist at ING, said could set the stage for the ECB to cut interest rates in September.
“The European Central Bank remains uncomfortable with cutting interest rates while wage growth is strong. Today’s decline will provide some relief to those expecting a gradual cycle of cuts,” Colijn said in a note.
He also added that the PMI data would not give hawks a reason to oppose a rate cut in September.
FED FOCUS
The dollar strengthened 0.55% against the yen to 146.1, with the rate-sensitive currency pair supported by a rise in U.S. Treasury yields.
That pushed the index, which measures the value of the U.S. dollar against a basket of currencies including the euro, sterling and yen, up 0.2% to 101.34.
The index fell to 100.92 on Wednesday for the first time this year, falling as markets gain confidence that the Fed is on track to cut interest rates starting in September.
Investors are now pricing in a 30% probability of a 50 basis point (bp) rate cut at the central bank’s September 17-18 meeting, and a full 25 bp cut, according to CME Group’s (NASDAQ:) FedWatch Tool.
However, Jeff Schmid, a member of the Federal Reserve Board, sounded cautious in his remarks on Thursday, without indicating a significant move.
He added that the rates are not overly restrictive and that decision-makers have the opportunity to consider what to do next.
Weekly U.S. jobless claims data will be released Thursday evening, and Federal Reserve Chairman Jerome Powell will deliver a highly anticipated speech at the central bank’s annual symposium in Jackson Hole 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 give evidence on Friday at a special session of parliament that will be examining the Bank of Japan’s decision to unexpectedly raise interest rates behind schedule last month.
Ueda’s hawkish stance contributed to a quick exit from bearish yen positions and a keen sell-off in Japanese stocks.
Elsewhere, the Swiss franc was slightly stronger, with the dollar down 0.16% at 0.8504 francs, while the Australian dollar remained at $0.6745.
