Markets Await US GDP for Further Slowdown Clues.
Global financial markets begin the week focused on the theme of economic divergence, as evidence of a cooling US economy contrasts with conditions elsewhere. Following a series of soft American data releases, investors are keenly awaiting this week's top-tier growth figures to gauge the pace of the slowdown and its implications for Federal Reserve policy. With a quieter week for central bank commentary, the data itself will be the primary driver.
The Pound Sterling is trading in a range defined by competing factors. While the prospect of a Bank of England rate cut in August is capping the upside, stubbornly high elements within UK inflation are providing a floor of support. The UK economic calendar is light this week, leaving the Pound susceptible to broader market sentiment and the direction of the US Dollar.
The US Dollar remains on the back foot, with last week's soft retail sales data reinforcing bets that the Federal Reserve will cut interest rates before year-end. The currency's direction this week hinges on Friday's advance estimate for second-quarter GDP, which will provide a critical test of the prevailing US economic slowdown narrative.
The Euro is benefiting from the broad-based weakness in the US Dollar, though its own economic picture remains sluggish. This week, the German Ifo Business Climate survey will provide a key sentiment check for the Eurozone's largest economy. Traders will be watching to see if the recent reduction in regional political uncertainty has translated into improved business confidence.
Events to Watch This Week:
⦁ Wednesday, July 23: German Ifo Business Climate
⦁ Thursday, July 24: US Durable Goods Orders
⦁ Friday, July 25: US GDP Growth Rate
The prevailing market narrative of a cooling US economy will be put to the test this week. While the calendar is lighter than in previous weeks, Friday's US GDP report is a highly significant release that has the potential to either confirm the market's dovish outlook on the Federal Reserve or force a significant reassessment, likely leading to volatility at the week's end.
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