August 14, 2025

“The UK economy beat expectations last quarter, although the pound is struggling to benefit from that this morning. Today’s focus is producer price inflation in the US ahead of tomorrow’s Trump-Putin meeting in Alaska.”

Sam Cornford – Head of Trading

USD

Rising bets on Federal Reserve rate cuts continued to weaken the dollar yesterday, after Treasury Secretary Bessent argued that rates should be 150-175bp lower and that this should begin with a 50bp cut in September. The market has not bought into that idea, with swaps pricing suggesting a 4% chance for a double cut next month, but the bet now is that we will get five 25bp rate cuts over the next twelve months. Today’s main event is the July PPI inflation report, where the consensus is looking for 0.2% month-on-month and should be low enough to keep markets happy that tariffs are not yet driving an inflationary spike.

GBP

A better-than-expected showing for the UK economy in the second quarter has handed the pound some support this morning, although some of the details have blunted the impact. A 0.4% jump in June saved Q2 from the negative growth in the previous two months, putting the quarterly figure at 0.3%, versus the 0.1% expected. However, the ONS attributed much of the growth to government spending and things like inventories, and not to the important stuff like consumer spending or investment – the underlying picture is still quite soft. The result this morning is a touch of strength against the euro and a flat GBPUSD.

EUR

While some broad dollar weakness helped to push EURUSD to a two-week high yesterday, it is trading on the softer side this morning heading into tomorrow’s US-Russia talks in Alaska. Rhetoric has ramped up heading into the event that could hold some promise for the euro, with Trump threatening ‘severe consequences’ for Russia if Putin does not engage seriously in peace talks. Today there is a second estimate for Q2 GDP, and in elsewhere in Europe we get a rate decision from the Norges Bank. The market reckons that policy will be unchanged.

Markets

European stocks are at a two-week peak as the S&P 500 and the Nasdaq have clinched record closing highs, thanks largely to rising hopes for rate cuts from the Federal Reserve.

Main Economic Events (All Times CET)

8:00am: UK GDP
2:30pm: US PPI Inflation

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