What’s Next for Footsie After Last Week’s UK Data Barrage

The pound has generally been trending lower in recent weeks as the consensus has formed that the BOE will ease monetary policy more than the Federal Reserve.

Data Weighs on Finances

The recent rush of key UK economic data appears to have reassured investors that the economy is growing steadily without generating too much inflation. This "goldilocks" scenario should benefit domestic companies, particularly housebuilders, but it may weigh on the value of the pound. Attention now turns to an upcoming speech by Fed Chair Jerome Powell in Jackson Hole, Wyoming, where he is expected to signal that the Fed will join other central banks in easing policy.

Initially, last week's UK jobs and inflation statistics caused some nervousness, as unemployment benefit claims rose whilst the unemployment rate fell. However, Wednesday's inflation figures eased concerns, coming in well below forecasts both for overall and core inflation. While the headline rose to 2.2%, within the Bank's 2% target, this was less than the 2.5% expected. Second quarter GDP growth of 0.6% met forecasts, but an upward revision to 0.8% for the previous period indicated ongoing UK economic resilience without generating undue inflation pressures.​

Keeping the Roll Going

Based on recent data, markets increased expectations of an interest rate cut by the BOE in September, with the chance rising from 36% to 45%. The Bank has already lowered rates by 0.25%, and consensus forecasts indicate two further reductions. The market has fully priced in an additional cut by November. Previously, high inflation in the services sector had constrained expectations of further easing, but last week's figures showed a significant decline in price pressures in this area of the economy.

What appears to have influenced the British pound more is the anticipated level of interest rates in 2025, with traders now foreseeing a reduction to as low as 3%. While the Fed is expected to cut rates sharply later this year, several FOMC members have stated that US rates will likely remain higher throughout the year. This could explain why traders are factoring in increased strength for the US dollar and the British pound trading lower. In the meantime, the FTSE 100 index stands to benefit from global monetary easing, especially mining stocks gaining from higher gold prices, as the benchmark index aims to recover all losses seen at the start of the month.​

Broadening Top

The recent sharp bounce at the 8000 handle pushed prices up to the upper boundary of a potential broadening pattern in Footsie. A break of 8400 is pending, which could confirm a potential move towards the measured-move projection of 8900. Failure to surpass 8400 of the pick of 8470 may instead signal a reversal towards the lower end of the broadening pattern at around 8000, ultimately leading to 7750.​

Source: SpreadEx

Key Takeaways

Recent UK economic data has reassured markets that growth is steady without high inflation, supporting domestic companies but weighing on the pound as it increased expectations of rate cuts in September and beyond. Attention now turns to a speech by JP, in which he may signal easing, in contrast to comments from some FOMC members that US rates will remain higher. Differences in monetary policy outlooks between the central banks appear to be driving traders' views of longer-term interest rate levels and relative currency strength.​