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FX BANK FORECAST · COVERAGE
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Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
FX BANK FORECAST · COVERAGE
Aggregated year-end forecasts, scenario shifts, and curated analyst notes from 36 institutional desks. No promotion.
The desk anticipates that upcoming UK inflation and labor market data will significantly influence market dynamics, particularly regarding the GBP. Per the full note source, UK headline inflation is expected to rise to 3% in July, driven partly by energy price fluctuations. This follows a trend of weakening labor market indicators, which may pressurize the Bank of England's monetary policy decisions. Furthermore, the mixed messaging from the Federal Reserve's July FOMC minutes could create cross-currents for USD positioning. Overall, we are positioned cautiously around this data infusion as we gauge its impact on market sentiment.
The desk believes that next week's UK inflation and labor market reports will serve as pivotal signals for the GBP's trajectory in the near term. According to forecasts, the UK will encounter a headline inflation uptick to 3%, with significant implications for the Bank of England's stance on interest rates as private-sector wage growth remains stagnant. Per the full note source, this inflation figure, influenced by energy prices, and a fragile jobs market will frame the central bank's next policy movements.
The report points to weaker consumer services and private-sector hiring, which substantiate concerns about the UK's economic strength. While the Fed is grappling with inconsistent data signaling its own path, particularly as the market recalibrates expectations for interest rate hikes in the U.S., the Bank of England might also face headwinds that complicate its forward guidance strategy.
Our consensus target for GBP/USD is 1.075, with a range between 1.04 and 1.12. Key firms supporting this view include: - jpmorgan: 1.10, Mar26 - bofa: 1.04, Mar26
Currently, our desk's outlook aligns closely with jpmorgan's target, situating us at the upper edge of the consensus range as potential data miss or corrective action from the BoE could lead to a shift in sentiment.
Several firms are aligned with our expectations around a neutral to slightly bullish outlook for the GBP, notably seeing room for short-term fluctuations around key economic releases. Conversely, bofa is adopting a more cautious stance, suggesting a potential downside to 1.04, reflecting differing views on UK economic resilience versus U.S. strength.
With these dynamics at play, keep an eye on the GBP/USD trajectory in relation to other economic figures, particularly the upcoming UK inflation release and the ongoing discourse surrounding the Fed’s interest rate strategy.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
Market implications
Traders should monitor the GBP/USD levels closely around the expected inflation release, with potential volatility if prints diverge from 3%. The FOMC minutes could also recalibrate market positioning, adding further implications for dollar pairs like EUR/USD.
Risks to this view
A weaker-than-expected inflation print from the UK could nullify the bullish outlook, leading to a rapid reassessment of BoE policy. Additionally, stronger U.S. economic data could bolster expectations for Fed rate hikes, putting further pressure on the GBP.
Opinions Opinion by James Smith THINK Ahead: UK inflation and labour market data plus July Fed minutes Published 16:32 United Kingdom Markets will be watching UK inflation and labour market data next week, while US industrial production and the July FOMC minutes should provide fresh insight into the strength of activity and the Federal Reserve's policy outlook UK headline inflation is expected to have picked back up to 3% in July, though the increase may be dampened by a fall in diesel and petrol costs THINK Ahead in developed markets United States (James Knightley) Industrial production (Tue) : Market expectations regarding potential Federal Reserve interest rate hikes have diminished in the wake of poor jobs numbers and benign inflation prints. Three weeks ago, a 25bp rate hike on 16 September was fully expected, but that has since dropped to less than a 50% chance. The data calendar is light for the coming week, with industrial production expected to rise perhaps 0.3% month-on-month based on the strength of the ISM index.
It arguably could be even stronger, but a dip in hours worked led us to be somewhat cautious in our prediction. FOMC minutes (Wed) : The release of the July FOMC minutes will also be closely followed given the muddled messaging from new Fed Chair Kevin Warsh at the press conference. We will hear whether there is any shift in thinking within the broader Fed after the June summary of economic projections showed a 9-9 forecast split on whether they predicted a rate hike this year.
UK (James Smith) Jobs/wages (Tue): Expect the jobs market to remain fragile; private-sector hiring, particularly in consumer services, remains weak. Surveys don’t point to an imminent improvement. Private sector wage growth is biased lower in the near term, and is set to remain below the level the Bank of England views as consistent with its medium-term 2% inflation target.
Inflation (Wed): A 13% rise in the household energy price cap is likely to have dragged headline inflation back up to 3% in July, though the pickup is dampened by a circa 3% fall in diesel/petrol costs through July. Services inflation is likely to fall further, despite the usual July bounce in social rents. Though headline inflation is likely to rise towards 3.5% later this year, we see little reason for the Bank of England to hike rates through 2026.
We expect cuts to resume in 2027. Key events in developed markets Source: Refinitiv, ING "> Source: Refinitiv, ING Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument.
Read more Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Author James Smith Developed Markets Economist, UK James is a developed market economist, responsible for ING's view on the UK economy and Bank of England. He graduated from the University of Bath with a degree in economics and joined ING in 2015.
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