Investors expect a turnaround in UK business activity ahead of the key GDP report
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Investors expect a turnaround in UK business activity ahead of the key GDP report

On Monday morning, the dollar index dropped, showing some profit-taking activity as investors unwound some long bets they had made after a month of solid gains for the greenback. The dollar also suffered from a rise in the euro, which jumped 0.5% on Monday. In the wake of the European Central Bank hiking 75 basis points in interest rates last week, investors have priced in a steeper rise in interest rates from the central bank this year.

The European stock market is expected to open cautiously higher following a rise in Asian stock markets earlier on Monday. Stock futures in the US also traded higher during the Sunday evening trading session after major benchmark averages ended three consecutive weeks of declines. Later in the week, critical inflation data will be released to the market, which is expected to shed light on inflation trends. 

There was a severe decline in bullion prices this year due to a series of sharp rate hikes by the Federal Reserve. This was because investors sought better yields from US Treasuries and the dollar. In the near term, this trend is likely to continue, with the Fed expected to raise rates by 75 basis points at its meeting next week, which marks the upper end of expectations regarding the Fed's rate hike. The CPI inflation rate in the United States did drop slightly during the past month but remained near its 40-year high, due mainly to the cost of food and fuel. Inflation may show more signs of cooling over the coming months, as fuel costs are now easing after peaking earlier this year.

Events of the day

The day's highlight will be the UK economic data for July, which is set to be released on Monday. Even though these data will likely not be particularly encouraging, they should still mark a rebound in economic activity from June, which is a positive sign.

The monthly GDP is expected to rebound by 0.3% from -0.6%, and the rolling 3-month measure is expected to edge back from -0.1% to 0.1% in the coming months.

In the same vein, industrial production and manufacturing production are both expected to rebound by 0.3% each, from -1.6% and -0.9% in June. There are several reasons to think that tomorrow's latest unemployment and wage data will serve as a reminder of the many challenges the country will face throughout the winter. On Wednesday, we will also receive inflation data. It is expected that these are expected to remain at 10.1% for August, with a tad of higher growth possible. However, there is a possibility that the government might have reached a peak with the fiscal measures it announced last week.