Synopsis:

ANZ maintains a negative outlook on the EUR, citing weak manufacturing data and global demand concerns, while expecting the GBP to remain firm despite a potential risk-off sentiment. Upcoming economic data will influence short-term currency movements.

Key Points:

• EUR Outlook:

  • Negative View: ANZ retains a bearish stance on the EUR, driven by weak Eurozone manufacturing data and ongoing global demand issues.
  • Factory Orders: The June increase in German factory orders was largely due to one-off large orders, masking an underlying decline.
  • Support on Crosses: The EUR may find short-term support against risk-sensitive currencies like the AUD and NZD but weaken against safe-haven currencies like the JPY and CHF.
  • ECB Impact: A 25bp rate cut by the ECB is expected and already priced in by the market, which may overshadow its short-term effects on the EUR.

• GBP Outlook:

  • Firm Performance: The GBP has remained resilient despite a risk-off environment.
  • Upcoming Data: Key focus will be on July’s wages and employment data. Persistent wage growth in sectors like finance and public services has been a key concern for the BoE.
  • Labour Market Trends: Cooling in the labour market is expected, with rising jobless claims and lower employment growth expectations.
  • Currency Momentum: Despite potential weaker labour data, GBP is expected to hold firm, particularly against the EUR, due to strong growth fundamentals. However, risk-off sentiment might favor the EUR slightly in the near term, potentially causing some upside in EUR/GBP.

Conclusion:

ANZ's outlook suggests continued weakness for the EUR due to poor manufacturing data and global demand concerns, while the GBP is expected to remain robust despite risk-off sentiment. The upcoming economic data, particularly on wages and employment, will be crucial for short-term GBP movements, with potential near-term EUR/GBP upside.