Key Market Insights:

Here's a quick rundown of some significant economic movements and what they might mean:

• The British Pound (GBP) is still weakening as we await crucial economic data releases. This suggests a cautious market sentiment regarding the UK's economic outlook.

• Meanwhile, trade tensions between the US and the European Union persist, creating ongoing uncertainty in global trade. This has been reflected in the Euro (EUR) strengthening against the Pound, with the EURGBP exchange rate reaching levels not seen since January 2024.

• Today, all eyes are on the US Consumer Price Index (CPI), a key indicator of inflation. Barclays Research is predicting figures slightly below the general consensus, which could influence market reactions.

• Finally, China's second-quarter GDP growth exceeded expectations. However, this robust performance may be partially attributed to an increase in exports pushed through before potential new tariffs, rather than a sustained surge in underlying demand.

Market Recap

UK Economy & Sterling:

 The British Pound (GBP) continued its downward trend yesterday, largely driven by ongoing worries about the health of the UK economy. This sentiment has led markets to increase the probability of a third interest rate cut by the Bank of England this year, now sitting at 35%. The upcoming UK CPI (inflation) figures tomorrow, followed by employment data on Thursday, will be critical. Stronger-than-expected inflation or weaker jobs numbers could further pressure the Bank of England to consider rate cuts, potentially weighing down the Pound even more.

US Dollar & Euro Resilience:

 The US Dollar (USD) held onto its recent gains. Interestingly, the Euro (EUR) performed better than many expected, despite the brewing trade conflict with the US. The European Union has prepared a substantial list of countermeasures, totalling €72 billion, targeting US goods if an agreement isn't reached. However, both sides remain optimistic about reaching a resolution by the August 1st deadline, suggesting a desire to avoid a full-blown trade war.

What This Could Mean for You:

• For UK-exposed investments: Keep a close eye on the upcoming UK economic data. These releases will significantly influence the Bank of England's next steps and, consequently, the Pound's performance.

• For international holdings: The persistent US/EU trade tensions introduce an element of uncertainty. While a resolution is hoped for, any escalation could impact global trade flows and market sentiment. The Euro's resilience, despite these tensions, is worth noting.

Today’s Market Update:

US Inflation in the Spotlight:

Today's headline event is the US Consumer Price Index (CPI) report for June. Market expectations are for a slight increase in inflation. A stronger-than-anticipated reading could bolster arguments for a more hawkish stance from the Federal Reserve, potentially strengthening the US Dollar. However, it's important to remember that the Fed is facing significant political pressure from the White House to cut interest rates. We can anticipate comments from President Donald Trump, likely advocating for rate cuts, regardless of today's CPI outcome.

UK Economic Signals:

 In the UK, we'll be listening closely to Bank of England Governor Andrew Bailey's speech at Mansion House today. Over the weekend, Governor Bailey indicated that the Bank of England is prepared to implement more substantial rate cuts if the job market shows a significant slowdown. This suggests a proactive approach to supporting the economy if conditions deteriorate. Additionally, Chancellor of the Exchequer Rachel Reeves will be speaking, and market participants will be keenly watching for any indications of potential tax increases, which could influence future fiscal policy and market sentiment. The British Pound is currently trading at a three-week low against the US Dollar (GBPUSD) and has retreated to its April lows against the Euro (GBPEUR), reflecting the ongoing economic uncertainties.

Looking Ahead:

As mentioned already, tomorrow's UK CPI figures will be crucial in further shaping expectations for Bank of England policy and the Pound's trajectory.

15th July 2025

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