GDP shock plus rising unemployment is pushing BoE toward easing

Daily Currency Update

Sterling edged lower as markets reacted to softer UK GDP data and lingering concerns over fiscal tightening. Gilts saw modest gains, pricing in expectations of further Bank of England rate cuts. However, UK equities held firm, supported by defensive earnings from Tesco and the insurance sector, along with renewed M&A activity.

European markets were largely rangebound, with Germany’s DAX and broader indices trading sideways. Uncertainty surrounding US-China trade developments and wider geopolitical risks kept risk appetite muted. The euro rose above 1.1500, marking a seven-week high, driven by broad USD softness and dovish expectations for the Federal Reserve.

May’s US CPI came in cooler than expected, reinforcing market hopes for a potential Fed rate cut in September. The dollar continued to retreat, now down 9% year-to-date, as dovish sentiment builds.

While the latest US-China discussions delivered a framework agreement, the absence of concrete detail left markets cautious. The dollar paused its decline, supported by hopes of improving trade relations.