UK GDP data shows economic uptick

The Pound edged higher on Thursday following robust British GDP data, while the euro remained close to over seven-month highs vs US Dollar. This strength was supported by data indicating slowing U.S. inflation, which bolstered expectations of a Federal Reserve rate cut next month.

Markets settled after recent turbulence, with the pound rising against the Dollar to 1.2843. This gain followed data showing that Britain's economy expanded by 0.6% in the second quarter of 2024, matching economists' expectations and building on a robust 0.7% recovery in the first quarter. The pound also strengthened on the euro, currently trading at 1.1670.

The euro held steady against the dollar after reaching $1.10475 on Wednesday, its highest level this year, as markets processed the U.S. inflation data. The data revealed that the consumer price index rose moderately, aligning with expectations, while the annual inflation rate slowed to below 3% for the first time since early 2021.

The figures, along with a slight uptick in producer prices in July, suggest that inflation is trending downward. However, traders now expect the Fed to be less aggressive with rate cuts than initially hoped. The next key data release is U.S. retail sales, set for release on Thursday.

According to the CME FedWatch tool, markets are now pricing in a 64% chance of a 25 basis point cut next month and a 36% chance of a 50 basis point reduction. Earlier in the week, traders were evenly split between the two options following last week's market sell-off.

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