Fundamental Summary:
1. UK shop price inflation eased to 0.9% in July, the smallest increase since December 2025. Data from the British Retail Consortium (BRC) showed that annual shop price growth slowed from 1.2% in June. Month-on-month, prices fell 0.1% in July. BRC Chief Executive Helen Dickinson noted that fierce competition among retailers, including summer food promotions and clothing discounts, helped limit price rises. Food inflation declined to 2.2%, its lowest since February 2025, while non-food inflation slowed to 0.2%. However, electrical, health, and beauty products saw price increases due to higher semiconductor and manufacturing costs. The BRC survey was conducted from July 1st to July 9th. The UK's broader consumer price inflation fell to 2.6% in June, a 15-month low. However, the Bank of England has warned that CPI could rise to slightly above 3.25% later this year due to higher energy costs from the US-Iran conflict.
2. The UK Labour Party's poll ratings have matched or overtaken the Reform Party, showing an early effect from Prime Minister Andy Burnham's first week in office. According to three different polling organizations, Labour's support has caught up with or surpassed Nigel Farage's Reform UK party. This marks a significant recovery in public opinion following Burnham's appointment. Farage's anti-immigration Reform party had led in most polls for over a year. Pressure from this led Labour to replace the unpopular Keir Starmer with former mayor Burnham on July 20th. In his first week, Burnham introduced measures to ease the cost of living, including removing energy bill taxes, capping bus fares, and cutting taxes on pubs. A Survation poll shows Labour at 26% support, ahead of Reform's 24%. Just a week before Starmer's resignation, Labour stood at 19% and Reform at 27%. A Survation executive noted this is Labour's highest rating since June 3rd and its first lead since May 3rd. Other polls show similar trends; More In Common found Labour at 28%, four points ahead of Reform. A YouGov poll shows both parties tied at 22%, with Labour up six points since May and Reform at its lowest since March 2025. YouGov also found that more respondents believe Burnham is better suited to be Prime Minister than Farage or other major party leaders. As Labour's support recovers, the Reform party faces questions about gift declarations from wealthy supporters, which Farage has strongly refuted, claiming the establishment is trying to discredit his party. Burnham, when asked about the poll recovery, said he won't "get carried away" but is pleased with the start and believes he has established a good connection with the public.
3. US consumer confidence fell in July, with views on the labor market remaining weak. Data from the Conference Board, released on July 28th, showed the consumer confidence index dropped to 90.8 in July from a revised 92.2 in June. This was below economists' expectations of a rise to 92.3. Dana Peterson, Chief Economist at the Conference Board, noted that respondents' feedback on economic drivers was generally pessimistic in July, with mentions of employment and unemployment issues increasing slightly. This reflects ongoing public concern about job prospects, which could pressure future consumer spending and the broader economic recovery.
4. US single-family home prices rebounded in May, while rising mortgage rates are increasing the burden of home buying. Data from the Federal Housing Finance Agency on July 28th showed that US single-family home prices rose 0.3% month-on-month in May, following a 0.1% decline in April. Year-over-year, prices increased by 2.2% in the 12 months to May, accelerating from 2.0% in April. This was driven mainly by a shortage of existing homes, particularly entry-level properties. Meanwhile, the average rate on a popular 30-year fixed-rate mortgage has risen by 60 basis points since the US and Israel launched military action against Iran in late February. Freddie Mac data shows the rate averaged 6.58% last week, an 11-month high. The collapse of a fragile ceasefire between the US and Iran has pushed up oil prices and US Treasury yields, to which mortgage rates are typically linked. The National Association of Home Builders estimates a current housing shortage of about 1.2 million units. Regionally, home prices rose 1.4% in the East South Central region and 1.1% in the Mountain region in May. The South Atlantic, Middle Atlantic, New England, West North Central, and West South Central regions also saw gains, while the Pacific and East North Central regions experienced declines. Year-over-year, all eight census divisions saw price increases, with the East North Central and Middle Atlantic regions showing particularly notable gains. The Pacific region was the only one to see a slight year-over-year decline of 0.3%.
5. The US goods trade deficit narrowed in June, but trade may still be a drag on second-quarter economic growth. Data from the Commerce Department on July 28th showed the goods trade deficit shrank by 4.2% in June to $101.5 billion, slightly higher than economists' forecast of $100 billion. However, as the deficit remained above the first-quarter average, trade could drag on economic growth for a second consecutive quarter. Goods imports fell by $8.2 billion to $306.2 billion in June, though they were still up 16.6% year-over-year. The decline in imports was broad-based: consumer goods imports fell 3.8%, capital goods imports fell 2.0% (but were up 37.4% year-over-year), food and auto imports each fell 2.5%, and industrial supplies imports fell 1.9%, likely due to lower oil prices. This pullback may reflect a weakening of the momentum from businesses pre-stocking to avoid shortages from the Middle East conflict, as well as oil price volatility following the collapse of the US-Iran ceasefire. On the export side, goods exports fell by $3.8 billion to $204.7 billion in June, their lowest in five months. Industrial supplies exports fell sharply by 4.4%, also likely linked to lower crude oil prices. Food and capital goods exports fell by 3.1% and 1.1%, respectively. However, auto exports rose by 5.1% and consumer goods exports rose by 3.2%, showing relative strength. Oliver Allen, Senior US Economist at Pantheon Macroeconomics, said his model suggests net trade will shave about one percentage point off GDP growth in the second quarter. The government will release its first estimate for second-quarter GDP on Thursday, with a Reuters poll expecting an annualized growth rate of 2.1%, flat with the first quarter. Despite the drag from trade, strong business investment in equipment and a rebound in consumer spending could partially offset the impact. Inventories, which have fallen for four consecutive quarters, remain an uncertain factor. A separate report from the Census Bureau on the same day showed wholesale inventories rose 0.3% month-on-month in June, unchanged from May. Retailer inventories were flat, with auto and parts dealer inventories rising 0.4%. Excluding motor vehicles, retail inventories fell 0.2%. This data feeds directly into GDP calculations.
Economic News:
The British Retail Consortium (BRC) reported that shop prices rose by just 0.9% year-on-year in July, the smallest increase since December 2025 and down from 1.2% in June. Food inflation slowed to 2.2%, its lowest since February 2025, and non-food inflation eased to 0.2%. BRC Chief Executive Helen Dickinson stated that retailers launched summer promotions due to intense competition, limiting price increases. Broader consumer price inflation fell to 2.6% in June, a 15-month low, but the Bank of England forecasts it will rebound to just above 3.25% later this year due to higher energy costs from the Middle East war. A Citi/YouGov survey showed that the public's inflation expectations for five years or more fell from 3.9% in June to 3.7% in July, while short-term expectations dropped from 3.8% to 3.4%. These are closely watched indicators by the Bank of England to gauge if price pressures are feeding through to consumers. Citi economists noted that delayed increases in fuel prices at the pump could still nudge short-term expectations slightly higher, but given the July increase was far smaller than in the second quarter, the impact should be limited. Last week's business surveys showed firms planning modest price and wage increases. In currency markets, the British pound fell to a more than three-week low against the US dollar, trading at $1.327, down 0.1% on the day. Brent crude oil fell 2.6% to $86.08 as hopes for US-Iran negotiations eased supply concerns, reducing inflation pressures. Markets are now focused on the Federal Reserve's policy decision on Wednesday, with the probability of a rate hike near 40% and the probability of a September hike as high as 95%. Global financial services firm Ebury stated that the market has fully priced in a September rate hike, setting a high bar for any hawkish surprise that could significantly boost the dollar. The Bank of England is expected to hold interest rates steady on Thursday. Weak labor market data has reinforced this expectation. Meanwhile, the spending plans of new Prime Minister Andy Burnham have created unease, continuing to pressure the pound this month. Burnham on Monday ruled out changing stamp duty in the next budget, but he had previously indicated he might ask the nation to pay "more" in taxes to address the immense spending pressures from an aging population and investment goals like rebuilding the military.
Political News:
Several recent polls show that the UK Labour Party's support has matched or surpassed Nigel Farage's Reform UK party. Labour's support has rebounded significantly after the first week of new Prime Minister Andy Burnham's tenure. A Survation poll shows Labour leading Reform 26% to 24%. A week before Starmer's resignation, Labour was at just 19% and Reform at 27%. Polls from More In Common and YouGov show similar trends, with Labour's support rising six percentage points since May. YouGov also reports that more Britons believe Burnham is better suited to be Prime Minister than Farage. In his first week, Burnham focused on livelihood issues, announcing measures to remove energy bill taxes, cap bus fares, and cut taxes on pubs, aiming to give voters "breathing space" on the cost of living. Regarding the poll recovery, Burnham said he won't "get carried away" but is pleased with the start and has connected with the public. On the same day, Burnham's government unveiled a plan for youth employment and skills training to address a growing youth unemployment crisis. Currently, over one million 16 to 24-year-olds in the UK are not in education, employment, or training (NEET), with the rate for 18 to 24-year-olds at 15.8%, more than three times the rate in the Netherlands. The new plan introduces apprenticeship grants of up to £4,500 and allocates £287 million to create 22,000 university places. Students in England will be able to study core subjects while gaining technical qualifications and work experience. Local governments, schools, and businesses will design courses based on local labor market needs, with a nationwide rollout expected by 2028. The government stated that combined with Starmer's previous apprenticeship reforms, the goal is to create 50,000 new youth apprenticeship positions by the end of this parliamentary term. Secretary for Work and Pensions MacFadyen noted that AI progress is reshaping the employment landscape, making the traditional assumption of a "safe and stable" job no longer valid. The Institute for Fiscal Studies warned that frequent reforms to technical education can cause confusion, making employer involvement crucial. A previous government review had warned that the UK could produce a "lost generation" of young people.
Financial News:
On Tuesday, London's FTSE 100 index rose 0.90% to close at 10,878.85 points, while the mid-cap FTSE 250 index gained 0.46%. Strong earnings from consumer stocks helped offset pressure from bank and energy shares. Unilever shares surged 8.58%, their biggest one-day gain in four years, after the company raised its annual forecast and reported its strongest quarterly volume growth in over a decade. Hedge fund Man Group hit its highest level since 2010 in early trading after reporting better-than-expected growth in its half-year assets under management. French pay-TV group Canal+ rose 9.75% after reporting a slight increase in half-year revenue, as growth in its traditional business offset a decline following the acquisition of African broadcaster MultiChoice. Clothing retailer Coats saw its shares jump 9.6% to lead the mid-cap index after reporting a rise in half-year profits. By sector, energy stocks fell 1.43% due to falling oil prices on hopes of a resolution to the US-Iran conflict. Bank stocks fell 1.37%, with Barclays shares dropping 4.79% despite reporting better-than-expected first-half profit growth, suggesting investors had already priced in strong banking sector results.
Geopolitical Conflict:
Saudi Arabia was attacked by drones, which it blamed on Iran-backed militias launching from Iraq. Saudi Arabia stated on Tuesday that its air defenses intercepted and destroyed several drones launched from Iraqi territory that were attempting to attack oil facilities in the eastern province. This was the second such attack in less than two days. Saudi Defense Ministry spokesman Turki al-Maliki blamed the drones on Iran-backed militias, emphasizing Saudi Arabia's right to respond at an "appropriate time and place." On the same day, Iranian Foreign Minister Araghchi spoke separately with his Saudi and Omani counterparts about the security of the Strait of Hormuz, stressing the need for increased cooperation on joint diplomatic efforts to establish regional stability.
Oman Submits Strait of Hormuz Management Plan, US Rejects Fee Concept.
Oman has submitted to Iran a management plan for the Strait of Hormuz, supported by Gulf states, which suggests charging voluntary fees for using the strait. The plan aims to lay the groundwork for ending trade disruptions caused by the US-Iran war. This system is similar to the Malacca Strait model, where Indonesia, Malaysia, and Singapore request voluntary contributions from ships for navigation, environmental protection, and search and rescue. However, a US official on Tuesday again rejected the fee concept, reiterating that the Strait of Hormuz is an international waterway and should not be controlled or restricted by Iran. Over the weekend, President Trump called off a two-week bombing campaign against Iran, stating that US-Iran negotiations are ongoing but threatening to resume airstrikes if talks do not progress. Iran has denied seeking to resume talks with the US. Iran had previously blockaded the strait following US and Israeli attacks, reaching a partial reopening agreement last month, but the agreement broke down in early July when Iran opened fire on vessels navigating without permission.
Trump Meets Netanyahu, Complains About Leaks, Calls Meeting 'Great'.
Before meeting with Israeli Prime Minister Netanyahu at the White House on Tuesday, President Trump expressed displeasure that intelligence details Netanyahu planned to discuss about Iran's nuclear facilities were leaked in advance. Using his nickname for Netanyahu, Trump said, "I don't need Bibi to tell me this... Why don't you just tell me directly? Why announce it to the whole world?" However, after the meeting, Netanyahu described the dialogue as "great" and one of the "best conversations" between the two men, emphasizing their shared goal of ensuring Iran does not acquire nuclear weapons. Trump also met with Ukrainian President Zelenskyy on the same day, who afterward stressed the importance of strengthening diplomatic efforts to end the war. The White House described both meetings as "positive and productive."
Ukraine Foreign Minister Calls Iran, Warns Against Escalation and to Stop Supporting Russia.
Ukrainian Foreign Minister Sybiha called his Iranian counterpart Araghchi on Tuesday, warning against escalation and demanding Iran stop all support for Russia. This call followed Iran's accusation that Ukraine attacked an Iranian merchant ship in the Caspian Sea, resulting in one death and one injury. Araghchi confirmed Sybiha stated the attack was not intentional and Kyiv is not seeking escalation, but emphasized that any attack on Iranian citizens or interests is unacceptable and compensation for losses is required. Sybiha said Ukraine's actions were "solely to defend the nation from Russian aggression" and never targeted civilian vessels or personnel. Meanwhile, Israeli Foreign Minister Sa'ar also spoke with Sybiha, discussing common challenges including the Iranian threat, and expressed a desire to deepen cooperation with Ukraine.
Technical Analysis for Pound:
Short-term Price Range Outlook: 1.3360 - 1.3270
Technical Indicator Summary:
The British pound against the US dollar hit an intraday low of 1.3272 on Tuesday, its lowest since July 15th, before recovering slightly as the dollar pulled back from highs. Overall, selling pressure on the pound appears to have eased ahead of the Federal Reserve's interest rate decision, with market sentiment turning cautious. The currency pair is likely to consolidate in the short term, awaiting the decision for clearer direction. The pound has been under persistent pressure, mainly due to dollar-side factors. The Fed's policy meeting this week is fraught with uncertainty, with market expectations having undergone significant adjustments in recent weeks. While most investors expect policymakers to hold the benchmark rate steady in the 3.50% to 3.75% range, surging energy prices and rising inflation concerns earlier this month have made the outcome difficult to predict. Interest rate futures data shows the probability of a 25-basis-point rate hike this week has risen from about 16% a week ago to around 36%, and the market expects a cumulative rate increase of about 43 basis points by the end of 2026. At the start of the year, the market widely anticipated two or three rate cuts, a clear reversal from current expectations. Options pricing data from Morgan Stanley shows that for the week ending July 24th, investors increased their long dollar positions while adding to short pound positions, reflecting a protective positioning for a stronger dollar. However, there are also constraints on further dollar upside. Eric Winograd, Chief US Economist at AllianceBernstein, noted that recent inflation data was below expectations, the labor market is stable, and current price pressures are mainly from an energy supply shock, which monetary policy is not well-suited to address, so his firm does not expect further rate hikes. Neil Sutherland, Head of US Fixed Income at Schroders, pointed out that the Fed's decision this week might not be the most crucial factor; the key is the central bank's statement on the threshold for its next move. Karl Schamotta, Chief Market Strategist at Corpay in Toronto, also mentioned that for most investors, a rate hike is still not the base case, and many are choosing to wait before the decision. These factors together limit the dollar's upside before the rate decision, providing conditions for the pound to stabilize temporarily at lower levels. On the UK domestic political front, the Labour Party's poll recovery in Burnham's first week has somewhat alleviated earlier market concerns about UK political uncertainty, offering marginal support for the pound. However, the transmission effect of poll changes on exchange rates is relatively limited and unlikely to provide a sustained driver for strength. Looking at technical indicators on the 4-hour chart, the pound against the dollar is trading below the middle Bollinger Band, reflecting an unchanged short-term bearish structure. At the same time, the Bollinger Bands are narrowing, indicating that short-term volatility is declining and the price is in a consolidation phase, awaiting an external catalyst for a directional breakout. The upper band near 1.3350 acts as short-term dynamic resistance, the middle band at 1.3320 is the bull-bear demarcation, and the lower band at 1.3280 provides short-term dynamic support. The 14-period RSI has rebounded into the weak range of 40-50, indicating that while short-term bearish momentum has eased, buying pressure has not yet effectively accumulated. Simultaneously, while the price has made a new low, the RSI's low point has risen in tandem, forming a bullish divergence pattern. This suggests a weakening of short-term downside momentum and the potential for a technical bounce. In terms of trend structure on the 4-hour chart, the pound/dollar remains in a bearish pattern of lower highs and lower lows from the recent peak of 1.3556. The medium-term downtrend has not fundamentally changed. While the Bollinger Bands and RSI suggest the pound has a tendency for a short-term corrective bounce, the overall weak structure is unlikely to change until the price effectively breaks above the 1.3360 area. For the short-term outlook, if the price breaks below yesterday's low of 1.3270, the bearish target could extend to 1.3210 or lower. Conversely, if the price breaks above the 1.3360 resistance area, the bullish rebound target could aim for the 1.3400 area or higher. In summary, the pound/dollar is currently in a state where the fundamentals lack a clear direction while technicals show signs of a weak repair. Ahead of the Fed's decision, bears are pausing after the recent sharp sell-off, but bulls lack sufficient reason to trigger a reversal. The technical bounce near the recent low appears more like a passive recovery following the dollar's pullback from highs, rather than a signal of active strength. The breakout of the upper and lower boundaries of the 1.3270 to 1.3360 range will be the key reference for judging short-term direction, while the decision outcome and forward guidance in the policy statement will provide clearer direction for the medium-term trend.
Short-term Price Path Scenarios for Pound:
Upside: 1.3360 - 1.3400
Downside: 1.3270 - 1.3210
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