GBP/AUD Subdued by Australian Inflation Data
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GBP/AUD fell to near 2.0510 after the release of the Reserve Bank of Australia's (RBA) latest meeting minutes, which emphasised that the board agreed further rate cuts were justified over time and focused on the timing and extent of easing. RBA Governor Michele Bullock said on Thursday that the central bank is cautious about lowering interest rates until it has more evidence that inflation is moving back towards the 2.5 percent target. Bullock also mentioned that labour demand remains strong, while core inflation is gradually easing. Her hawkish remarks, however, do not boost the Aussie as traders continue to assess developments surrounding a new US trade deal. On the data front, Judo Bank and S&P Global showed that Australia's Composite PMI rose to 53.6 in July versus 51.6 prior, reaching the highest level since April 2022 and marking the tenth consecutive month of expansion. Australian Services PMI climbed to 53.8 in July from the previous reading of 51.8, reaching its fastest pace in 16 months. Meanwhile, the Manufacturing PMI came in at 51.6 in July versus 50.6 prior. New orders for manufactured goods rebounded, driving the strongest overall growth in new business in more than three years. On Thursday, Chinese President Xi Jinping stated that the EU's current challenges are not caused by China, expressing hope that the bloc will maintain open trade and investment markets, as reported by Xinhua.
On the sterling front, investors are awaiting the S&P Purchasing Managers' Index (PMI) data and CBI Industrial Order Expectations figures. Meanwhile, UK fiscal risks have re-emerged, as the Office for National Statistics (ONS) reported on Tuesday that the government borrowed the second-highest amount of funds since 1993 to offset the rise in debt costs, which accelerated due to higher inflation. UK official data showed that public sector net borrowing amounted to £20.7 billion last month, surpassing the £17.1 billion forecast for June by the Office for Budget Responsibility (OBR). Increasing UK borrowings set the stage for tax hikes by the administration in its upcoming Autumn Statement. On the monetary policy side, market experts are growing more confident that the Bank of England (BoE) will cut interest rates at its August monetary policy meeting. The seasonally adjusted S&P Global/CIPS UK Manufacturing Purchasing Managers' Index (PMI) edged higher to 48.2 in July from 47.7 in June. The data exceeded the market forecast of 48 for the reported period. Meanwhile, the Preliminary UK Services Business Activity Index unexpectedly fell to 51.2 in July from June's 52.8, coming in below the anticipated 53 figure.
In today's session, Purchasing Managers' Index (PMI) data from both regions, trade tariff uncertainties and RBA Governor Michele Bullock's speech will influence the GBP/AUD exchange rate.
EUR/USD Muted Ahead of ECB Rate Decision
EUR/USD traded near 1.1766, amid rising market speculations that the European Central Bank (ECB) will keep interest rates steady in the upcoming sessions. The EU and the US are progressing towards a trade agreement that may include a 15 percent US baseline tariff on EU goods and potential exemptions. Optimism about the trade deal offers some support to the shared currency. European trade negotiators are attempting to secure a deal to avoid the 30 percent tariff rate that Trump has announced he would impose on imports from the EU on August 1. However, the bloc plans to impose 93 billion euros in counter tariffs if no agreement is reached, which could escalate trade tensions. Any signs of negative developments in US-EU trade talks could put downward pressure on the EUR.
In July, the Eurozone's manufacturing sector continued to contract, while the services sector experienced growth, according to the latest HCOB Purchasing Managers' Index (PMI) Survey published on Thursday. The Manufacturing PMI increased slightly to 49.8 from 49.5 in June, aligning with market expectations of 49.8. Meanwhile, the Services PMI rose to 51.2 from 50.5, exceeding forecasts of 50.8 and reaching a six-month high. The overall Eurozone PMI Composite for July stood at 51, up from 50.6 in June and above the expected 50.5. The HCOB Manufacturing PMI in the Eurozone's economic powerhouse rose to 49.2 in July, compared to June's 49, missing the market forecast of 49.4. The measure reached a 36-month high. Meanwhile, Services PMI increased to 50.1 in July from 49.7 in June. The market expectations were for 50 in the reporting period. The gauge hit a four-month high. The HCOB Preliminary German Composite Output Index stood at 50.3 in July, down from 50.4 in June and below the 50.7 forecast. The index was at its lowest level in two months. The German GfK Consumer Confidence Index for August fell to -21.5 from -20.3 in the previous month, contrary to market expectations of a slight improvement to -19.2.
On the greenback front, investors await the inflation and unemployment data for fresh insights on the US dollar. On the data front, US housing prices reached their highest level for June since 1999, with a 2 percent increase from the same period a year earlier. Existing Home Sales plunged by 2.7 percent month on month to 3.93 million in June from 4.04 million a month prior. Investors anticipate a slight increase in July's flash Manufacturing PMI from 52.0 to 52.5, while the Services PMI is projected to rise from 52.9 to 53.0.
Today's European Central Bank decision and press conference will shape the sentiment around the EUR/USD exchange rate.
GBP/JPY Hovers Following the US-Japan Trade Agreement
GBP/JPY drops sharply near 198.52, benefiting from improved market sentiment as news of a trade agreement between the United States (US) and Japan boosts prospects for more interest rate hikes by the Bank of Japan (BoJ) this year. On Tuesday, US President Donald Trump confirmed via a post on Truth Social that Washington and Tokyo have reached a trade agreement. Trump added that Japan will face reciprocal tariffs of 15 percent, and also stated that Japan will invest 550 billion US dollars into the US and will open its country to trade, including cars and trucks, rice, and certain other agricultural products, among other things. Washington also reduced the automobile tariff to 15 percent, the same rate applied to other nations. Japan's trade deal with the US eliminates a key risk, indicating that conditions for the Bank of Japan to raise interest rates further are emerging. Deputy Governor Shinichi Uchida reiterated the BoJ's plan to continue raising rates if the economic and inflation outlooks align with forecasts. Meanwhile, Japan's ruling coalition, the Liberal Democratic Party (LDP) and its junior partner Komeito, suffered a defeat in the upper house elections last weekend, provoking uncertainty and fuelling concerns about Japan's fiscal health, which may weigh on the yen.
The S&P Global Japan Manufacturing Purchasing Managers' Index (PMI) fell to 48.8 from June's final reading of 50.1 as businesses evaluated the impact of US tariffs. This, to a greater extent, overshadows the optimistic indicator for the services sector, which rose to 53.5 in July from 51.7 in the previous month. Japan's top trade negotiator, Ryosei Akazawa, said on Thursday that the trade deal between Japan and the United States aligns with the country's interests. Akazawa added that he had not yet discussed how to implement the deal with US officials. Bank of Japan Deputy Governor Shinichi Uchida stated on Wednesday that the trade deal between the United States and Japan represents a significant step forward, helping to reduce uncertainty for Japanese firms. Core consumer inflation may briefly fall below 2 percent in the next fiscal year, but is expected to pick up again afterwards gradually.
On the GBP's front, increasing market confidence that the Bank of England (BoE) will cut interest rates at its August monetary policy meeting could drag sterling lower. Investors will pay close attention to the private sector's hiring trends, as recent labour market data has shown signs of slowing down due to an increase in employers' contributions to social security schemes. The seasonally adjusted S&P Global/CIPS UK Manufacturing PMI slightly increased to 48.2 in July from 47.7 in June, surpassing market expectations of 48. Meanwhile, the Preliminary UK Services Business Activity Index unexpectedly declined to 51.2 in July from 52.8 in June, also falling short of the forecast 53.
Investors will monitor the S&P Purchasing Managers' Index (PMI) data for further insights into the GBP/JPY exchange rate.
EUR/CAD Wobbles After Upbeat Eurozone PMIs
EUR/CAD traded near 1.6003, as market sentiment around the ECB's monetary policy decision lent support to the shared currency. German consumer confidence declined further heading into August, with the GfK Consumer Climate index dropping to -21.5 from -20.3, missing expectations of -19. Spain's unemployment rate decreased to 10.29 percent in the second quarter of 2025 from 11.36 percent in the previous three months, marking the lowest level since the first quarter of 2008. The headline HCOB Flash France Composite PMI Output Index rose to an 11-month high of 49.6 in July, up from 49.2 in June. The Eurozone manufacturing sector remained in contraction, while the services sector expanded in July, according to data from the latest Purchasing Managers' Index (PMI) survey published by HCOB on Thursday. The Eurozone Manufacturing PMI increased to 49.8 in July from 49.5 in June, matching market expectations of 49.8. The bloc's Services PMI rose to 51.2 in July from 50.5 in June, aligning with the expected 50.8 reading and reaching a six-month high. The HCOB Eurozone PMI Composite stood at 51 in July, compared to 50.6 in June and the 50.5 forecast. The German manufacturing sector's contraction eased in July, while the services sector returned to expansion, according to the preliminary business activity report published by HCOB on Thursday. The HCOB Manufacturing PMI in Germany increased to 49.2 in July from June's 49, falling just short of the market forecast of 49.4, but hitting a 36-month high. Meanwhile, Services PMI advanced to 50.1 in July from 49.7 in June, with expectations of 50, reaching a four-month peak. The HCOB Preliminary German Composite Output Index registered at 50.3 in July, down slightly from 50.4 in June and the 50.7 forecast, marking its lowest level in two months. Furthermore, market optimism around the Eurozone and US negotiations could further strengthen the euro.
On the other hand, positive market sentiment driven by trade deals and an improved global economic outlook supported the Canadian dollar. Canadian Prime Minister Mark Carney reiterated Canada's stance of cautious willingness to engage in trade talks with the Trump administration but warned that Canada will continue to support its industries and seek additional trade deals with other countries. In addition, crude prices continue to decline due to worries that increased supplies from producer countries and decreased demand from global trade restrictions could result in an oil glut in the upcoming months, potentially affecting the loonie.
Canadian Retail Sales data for May, hopes of a US-EU trade deal, upbeat Eurozone PMIs and the European Central Bank's (ECB) monetary policy meeting will influence the EUR/CAD exchange rate.
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