Pound (GBP) pressured by tax hike speculation
The pound (GBP) closed last week on the defensive, amid growing concern over the likely tax moves of Chancellor Rachel Reeves in her autumn budget.
Markets are growing increasingly unnerved by speculation that the tax hikes needed to plug a sizable gap in public funding will choke off UK economic growth.
In the absence of any notable UK economic releases, the pound may struggle to find direction today.
Euro (EUR) subdued despite rise in German inflation
The euro (EUR) was mostly muted on Friday despite Germany’s latest consumer price index printing above expectations.
The flash CPI reading reported inflation climbed from 2% to 2.2% in August, outpacing forecasts for a more modest rise to 2.1%.
This week opens with the release of the Eurozone’s latest unemployment figures. If the jobless rate remains at a record low of 6.2% it could offer some modest support for the euro.
US dollar (USD) buoyed by rising inflation
The US dollar (USD) firmed at the end of last week as the Federal Reserve’s preferred indicator for inflation – the core PCE price index – climbed to a five-month high of 2.9%.
While this didn’t impact bets for a September rate cut, it prompted some USD investors to trim their bets for an additional 50 basis points of cuts through the remainder of 2025.
With US markets closed for Labor Day, thin trading conditions could limit movement in the US dollar today.
Canadian dollar (CAD) undermined by sizable slump in GDP
The Canadian dollar (CAD) faced headwinds on Friday after Canada’s latest GDP figures reported a larger-than-expected contraction in the second quarter.
The focus for CAD investors may turn back to oil prices at the start of this week, with the commodity-linked ‘loonie’ potentially coming under additional pressure if prices continue to soften.
Australian dollar (AUD) muted as Chinese factory sector contracts
The Australian dollar (AUD) is off to a slow start this week after data released over the weekend showed that China’s factory sector contracted for the fifth consecutive month.
New Zealand dollar (NZD) flat in risk-averse trade
The New Zealand dollar (NZD) was also subdued in overnight trade, amid a cautious start to the week due to rising geopolitical uncertainty.
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