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Nomura’s European Economics team highlights that UK composite output PMI rose to 52.5 in August, with services offsetting weaker manufacturing. GfK consumer confidence improved to its highest level in two years, supporting activity. However, UK composite input and output price indices climbed further above February levels, leaving Nomura forecasting no BoE rate change but flagging upside risks if price pressures persist.

Stronger services and rising inflation signals

"Meanwhile, the manufacturing output index declined in August in the UK, and it was the services sector that contributed to the overall increase in the composite index. UK GfK consumer confidence data out this morning showed a further notable improvement in August, rising to -14 from -17 and marking the highest reading for two years."

"By contrast, in the UK, composite price indices increased in August, due to rises in the service sector which outweighed declines in manufacturing. The composite input price index increased 1.4pts to 67.2 and the composite output price index was up 0.7pts to 57.1. Both are higher than in February."

"However, the rise in UK service sector price indices highlights the risk that the BoE may need to raise rates, against our forecast of no change this year. However, other price indicators, most crucially the BoE’s own DMP survey are important to watch to understand forward-looking price pressures, which help policymakers gauge potential for second-round effects."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• Flash Purchasing Managers Index (PMI) surveys beat forecasts in both the Eurozone and the United Kingdom.
• German manufacturing led the beat at a multi-year high, but German services slipped back into contraction, keeping the Euro mixed.
• Iranian President Masoud Pezeshkian said Iran wants to end its conflict with the US now.

The Euro (EUR) is falling against the British Pound (GBP). EUR/GBP held the mid-0.8500s on Friday, hovering just below the 0.8570 area, even after a strong round of August flash Purchasing Managers Indexes (PMIs) on both sides of the cross. The reaction was muted for a simple reason: the data was good for both currencies.

The Eurozone composite PMI rose to a nine-month high, with Manufacturing the standout. German factory activity hit its highest level in more than four years. The soft spot was German Services, which slipped back below the 50 line that separates growth from contraction, keeping the Euro's read mixed. In the UK, the composite also beat, driven by Services, while Manufacturing eased broadly in line. Weaker-than-expected UK Retail Sales did little to dent Sterling.

Iranian President Masoud Pezeshkian said on Friday that Iran wants to end its conflict with the US now, "from a position of strength", with the world acknowledging "its victory". Speaking at the Islamic Medical Association's assembly, he said those who "sit across the border and invite the enemy to invade" the country are "not Iranians". The tone points to de-escalation, and it is the Middle East risk backdrop, more than the growth surveys, that has kept European currencies on a tight leash this week.

Technical analysis:

In the 4-hour chart, EUR/GBP trades at 0.8563, capped by the 20-period Simple Moving Average (SMA) at 0.8566 and a dense band of nearby resistance, which keeps the short-term bias slightly bearish despite the pair holding just above the 100-period SMA at 0.8559. The Relative Strength Index (RSI 14) around 49 suggests neutral momentum, reinforcing the view of a capped market rather than a directional breakout.

On the topside, immediate resistance is clustered at 0.8565 and the 20-period SMA at 0.8566, followed by higher hurdles at 0.8571 and 0.8576. On the downside, the horizontal line at 0.8563 acts as a pivotal level currently being tested, with the 100-period SMA at 0.8559 providing the next layer of support if sellers regain control.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

TD Securities strategists argue that Kevin Warsh’s Jackson Hole speech will focus on structural themes such as productivity, AI-driven growth and Federal Reserve (Fed) regime change. They expect rate expectations to stay anchored, with US Dollar (USD) price action driven more by volatility and perceptions of inflation credibility than by new forward guidance.

Dollar seen volatility-prone on Warsh

"USD risks are skewed modestly to the downside. Any hawkish clarification on inflation credibility may provide only limited USD support. Alternatively, failure to address inflation credibility could weigh more materially on the dollar."

"Warsh's speech will likely focus on broader structural themes such as productivity, AI-driven growth, supply-side dynamics, and longer-term institutional reforms at the Fed. The immediate implication for FX is that rate expectations will remain relatively anchored, limiting the scope for a sustained directional move in the USD."

"From an FX perspective, the most likely outcome is that Jackson Hole generates more volatility than trend. A speech centered on structural economic themes and Fed regime change would likely leave markets searching for policy clues that are not there. In that environment, the dollar may struggle to establish a sustained direction unless Warsh delivers a clear message on inflation credibility."

"The asymmetry, however, may lean modestly USD-negative. Markets appear more concerned about the absence of a hawkish reaffirmation of the Fed's inflation mandate, especially after recent Warsh appearances led investors to price out expectations of further Fed hikes despite lingering concerns about elevated inflation. As a result, any effort by Warsh to "clear the air" around inflation credibility is likely to provide only modest support for the dollar."

"By contrast, any failure to address concerns around the credibility of the Fed's inflation-targeting framework could continue to weigh more heavily on the USD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Brown Brothers Harriman’s (BBH) Elias Haddad reports EUR/USD is firmer on broad US Dollar (USD) weakness and stronger-than-expected Eurozone August Purchasing Managers' Index (PMI) data. Elias Haddad highlights the composite PMI at a nine-month high, driven by manufacturing. He notes swaps have virtually fully priced a 25 bps European Central Bank (ECB) hike in September and around 60 bps of tightening over twelve months, placing rates near the top of the ECB’s neutral range.

Eurozone data underpins EUR/USD

"EUR/USD is firmer on broad USD weakness and encouraging Eurozone economic activity. The Eurozone August PMI was stronger than anticipated."

"The composite PMI increased to a nine-month high at 52.1 (consensus: 51.7, prior: 52.0) reflecting a solid and accelerated rise in manufacturing activity. The pace of expansion in services activity was unchanged from July."

"That’s reasonable and would leave the policy rate near the top of the ECB’s estimated neutral range (1.75%-3.00%)."

"The swaps curve has virtually fully priced in a 25bps ECB rate hike to 2.50% at the next September 10 meeting and a total of 60bps of tightening over the next twelve months."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• USD/JPY trades around 158.85 on Friday, coming under pressure after the previous day’s rebound.
• Accelerating underlying inflation in Japan reinforces expectations of higher Japanese interest rates.
• US business activity accelerates in August, but the US Dollar remains weighed down by reduced bets on an immediate rate hike.

USD/JPY trades around 158.85 on Friday at the time of writing, edging lower after rebounding from the 158.00 level on Thursday. The pair remains under pressure as the Japanese Yen (JPY) benefits from fresh inflation data supporting further monetary tightening in Japan, while the US Dollar (USD) remains close to its lowest levels since May.

In Japan, the core Consumer Price Index (CPI), which excludes fresh food, rose 1.8% YoY in July, following a 1.6% increase in June. This marks its fastest pace since January. The index excluding both fresh food and energy also accelerates to 1.8%, from 1.7% previously.

These figures reinforce expectations that the Bank of Japan (BoJ) could continue normalizing its monetary policy. The prospect of higher Japanese interest rates therefore provides support to the Japanese Yen, although the still-wide interest rate differential between the United States (US) and Japan could limit the Japanese currency’s appreciation.

On the US side, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major currencies, remains close to its lowest level since May 14. Investors are scaling back expectations of immediate monetary tightening by the Federal Reserve (Fed), although inflation risks continue to keep the possibility of another rate hike later this year alive.

The latest activity data nevertheless provide an argument for US policymakers favoring a restrictive monetary stance. The preliminary US S&P Global Composite Purchasing Managers Index (PMI) accelerated to 56 in August from 54.5 in July, signaling a faster expansion in private-sector activity.

The improvement is mainly driven by services. The S&P Global Services PMI rose to 56.8 in August from 54.6 previously, while the Manufacturing PMI slowed to 53.2 from 53.9 in July. Both indicators nevertheless remain above the 50 threshold separating expansion from contraction.

The resilience of the US economy could limit downside pressure on the US Dollar by reducing the need for monetary easing. For USD/JPY, the outlook therefore remains caught between expectations of a more restrictive BoJ, which support the Japanese Yen, and solid US economic activity that could sustain the higher-for-longer interest rate scenario in the United States.

Japan data bolsters BoJ tightening bets as JPY mood turns cautiously firmer

Strategists at Scotiabank highlight that Japan’s latest data run is reinforcing expectations for Bank of Japan tightening. They note that “Japan’s July CPI rose to 1.9% in the year, in line with expectations, extending the steady pick up in prices seen since February,” while “preliminary August PMI data reports were all stronger than expected as well, indicating firm momentum in services and manufacturing.”

According to Scotiabank, this combination of firmer inflation and activity “added marginally to conviction that the BoJ will tighten next month, with 20bps or hikes reflected in swaps.” They add that the “price data helped lift the JPY to a 0.4% rise against the soft USD on the day,” underscoring a modest but notable shift in currency sentiment.

From a market perspective, Scotiabank characterizes the technical backdrop as “neutral/bearish—A net loss for the USD on the week may herald some relief for the JPY. USD dips drew firm support last week but that conviction has not been evident this week.” In their view, “the near-term mood on the JPY may be shifting, if only slightly,” with “USD losses below 158.25” seen as potentially signaling “a bit more weakness ahead.”

(This story was corrected on August 21 at 15:30 GMT to correct that Japan CPI ex food and energy was 1.8%, not 1.9%).

Norman Liebke at Commerzbank warns that low European gas storage, suspended LNG exports from Qatar and the end of the refilling phase are keeping European gas prices elevated. The TTF benchmark is already above EUR 65 per MWh, and the bank cautions that a widening storage gap and ongoing Middle East tensions could push prices sustainably higher.

TTF risk from low storage

"Against the backdrop of low European gas storage levels, the continued suspension of LNG exports from Qatar, and the approaching end of the refilling phase, European gas prices are also high."

"Should the gap from the usual storage level - currently 17 percentage points widen further, the TTF benchmark price could even sustainably exceed the 65 EUR per MWh mark."

"Across the EU, gas storage levels are just over 61%, marking the lowest seasonal level since the data series began in 2009. In Germany, storage levels are only at roughly 50%, which is 27 percentage points below the five-year average."

"At least for Europe, we calculated this Tuesday that European LNG imports would have to increase significantly from their current levels in order to achieve sufficient gas storage levels by the end of March next year."

"Additional upward pressure could arise if tensions in the Middle East persist and Europe has to continue its competetion with Asia for available LNG shipments."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Royal Bank of Canada economists Nathan Janzen and Abbey Xu expect Canadian gross domestic product data for June and Q2 to confirm a strong rebound after winter stagnation. Monthly GDP is tracking above 3% annualized, supported by firmer labour markets, stronger consumer spending, and improved business and residential investment, though they warn that auto-led trade gains and demographic and trade headwinds will limit future growth.

Q2 strength and sustainability risks

"Next Friday’s Canadian gross domestic product reports for June and Q2 are expected to confirm a strong rebound in economic activity following stalling growth over the winter."

"We expect a 0.2% increase in June, in line with Statistics Canada’s earlier advance estimate to add to an almost full percentage point increase over April and May."

"Monthly numbers have been highly revision prone, but track above 3% annualized growth in Q2 overall."

"Net trade likely made a substantial positive contribution as exports outpaced imports, led in part by a recovery in the auto sector following winter production disruptions."

"The boost from auto production and net trade in Q2 is unlikely to be repeated in coming quarters."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• EUR/USD reverses its intraday advance as the US Dollar finds some stability near three-month lows.
• The broader backdrop stays challenging for the US Dollar amid fiscal and policy concerns.
• The pair remains on course for a fourth straight weekly advance.

EUR/USD reverses its earlier gains on Friday as the US Dollar (USD) steadies after retesting the three-month low touched the previous day. At the time of writing, the pair trades around 1.1677, easing from an intraday high of 1.1711, its highest level since May 14.

Traders also digest preliminary S&P Global Purchasing Managers' Index (PMI) data showing that US business activity remained in expansion in August. The Composite PMI rose to a 52-month high of 56.0 from 54.5, while the Services PMI climbed to a 20-month high of 56.8 from 54.6. The Manufacturing PMI eased to a five-month low of 53.2 from 53.9.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 98.82, recovering from an intraday low of 98.56. Despite the intraday pullback, EUR/USD remains on track for a fourth consecutive weekly gain as the broader macroeconomic backdrop leans against the Greenback.

The US Dollar came under heavy selling pressure earlier this week after the US Treasury announced that it would double its liquidity-support buybacks for longer-dated government securities. The move raised fresh concerns about US fiscal credibility and the sustainability of rising government debt.

Fading expectations of a Federal Reserve (Fed) interest-rate hike also keep US Dollar bulls at bay. The CME FedWatch Tool shows a 65% probability that the central bank will leave interest rates unchanged next month following softer US employment and inflation data for July. However, heightened energy-driven inflation risks stemming from the US-Iran stalemate keep the possibility of a rate hike alive.

Meanwhile, the monetary policy outlook favours the Euro (EUR), with markets widely expecting the European Central Bank (ECB) to raise interest rates in September

BNY Mellon’s Geoff Yu highlights comments from ECB Governing Council member Martins Kazaks, who said the central bank remains “well positioned to tighten policy further if needed,” with Euro area inflation “still near 3% and therefore above target.” Kazaks underscored that “September’s decision remains data dependent,” even as markets have largely priced in “another 25bp hike after June’s move.”

Scotiabank strategists Shaun Osborne and Eric Theoret point out that Japan’s July Consumer Price Index (CPI) and stronger August Purchasing Managers' Index (PMI) data support expectations for Bank of Japan (BoJ) tightening, with about 20 bps of hikes priced in swaps. The resulting JPY strength has produced a modest USD/JPY decline. Technically, they describe the setup as neutral to bearish, with losses below 158.25 seen as opening further downside.

BoJ tightening expectations support Japanese Yen

"Japan’s July CPI rose to 1.9% in the year, in line with expectations, extending the steady pick up in prices seen since February."

"Preliminary August PMI data reports were all stronger than expected as well, indicating firm momentum in services and manufacturing."

"Inflation data added marginally to conviction that the BoJ will tighten next month, with 20bps or hikes reflected in swaps. Price data helped lift the JPY to a 0.4% rise against the soft USD on the day."

"Neutral/bearish—A net loss for the USD on the week may herald some relief for the JPY. USD dips drew firm support last week but that conviction has not been evident this week."

"The near-term mood on the JPY may be shifting, if only slightly. USD losses below 158.25 may signal a bit more weakness ahead."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)