UK GDP for August released this morning, showing the economy bounced back from July’s 0.6% contraction, largely aided by a rebound in the services sector. The headline 0.2% reading for August, whilst positive, also showed declines in the production and construction sectors. This will not change the likelihood the UK economy will enter into a technical recession, with growth data for Q3 and Q4 this year expected to contract.
The recent steep fall in US bond yields on the back of the war in the Middle East continues to encourage US dollar selling, taking the broader dollar index down to fresh two-week lows.
Yesterday’s US Producer Price inflation report came in hotter than forecast, but failed to encourage dollar buying - as for now, markets choose to focus on declining long-term US borrowing costs.
Minutes from the recent US FOMC meeting showed policy makers agreed that monetary policy should remain restrictive for some time, but noted that the risks of over tightening have to be balanced against controlling inflation.
Elsewhere, ECB members continue to indicate interest rates have peaked, and are adopting the US stance of keeping rates higher for longer.
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