US recession fears rock markets

What’s been happening?

The trigger for the recent volatility were some abysmal payroll figures from the US. The US dollar subsequently plummeted as these raised fears that high interest rates would lead to a ‘hard landing’ for the US economy. Concerns over which prompted a dramatic market selloff in the second week of August.

In addition to getting caught up in the wider market selloff, the pound was also pressured in the first half of August by the Bank of England’s (BoE) latest interest rate decision as the bank cut rates for the first time since 2020.

Meanwhile, the euro was able to trend broadly higher over the past fortnight as the single currency benefitted from its negative correlation with the US dollar, as well as stronger-than-expected Eurozone inflation and GDP figures.

What do you need to look out for?

Looking ahead, the immediate focus for GBP investors will be a slew of high impact UK economic data releasing over the coming week. Could an acceleration of inflation or a robust GDP print weaken BoE rate cut bets and lift the pound?

For USD investors the focus will be on the Federal Reserve, with the latest US inflation figures and the bank’s annual Jackson Hole Symposium set to shape expectations for a Fed rate cut in September.

Finally, the euro’s recent gains may be tested over the next couple of weeks, particularly if the Eurozone’s latest PMIs report activity in the bloc’s private sector remained weak this month.