The Daily Brief

Sterling held in a tight band yesterday, slipping fractionally to close near 1.3464 to 1.3478 depending on the source, essentially flat on the session. The number that matters more sits on today's calendar rather than yesterday's tape: the UK construction PMI for July is due this morning, forecast to firm to 40.0 from June's 38.4, which would still leave the sector in outright contraction but narrowing that contraction for a second month. That matters because it is the missing piece in an otherwise improving private-sector picture.

Last week's composite and services PMIs both swung back into expansion after a rough June, jumping to 52.2 and 52.1 respectively, while the manufacturing read alone was revised down to a four-month low. Construction has been the laggard through that recovery, and today's print is the first test of whether the improvement in services is broad enough to lift the weakest sector too, or whether builders are still waiting for a rate cut the Bank has so far declined to signal.

The Bank held Bank Rate at 3.75% on a 6-3 vote in late July, and Governor Bailey used the press conference to push back against an imminent tightening cycle, which is one reason ten-year gilts have held above 4.85% and the thirty-year has sat near its highest in two months. The long end is not pricing a Bank about to ease either; it is pricing an unresolved fiscal question, since the new Prime Minister has signalled he wants flexibility within the borrowing rules and the Chancellor has yet to set out how promised cost-of-living measures will be funded.

Sterling is effectively long a domestic recovery story that construction data can reinforce or undercut this morning, and short a fiscal story nobody in Westminster has closed out. Sell-side desks remain structurally bullish on cable into 2027, pointing to the Bank's roughly 150 basis point carry advantage over the European Central Bank, though the spread between the most bullish and most bearish year-end calls is still one of the widest in the G10 set, a sign the carry case is intact but nobody wants to commit to its timing.

What is propping sterling up this morning is not a domestic story at all: the dollar has softened as chip stocks stumble in Asian trade and gold holds most of Wednesday's four percent surge, and cable tends to benefit passively whenever the dollar side of the pair is the one under pressure. Cable at 1.3478 sits in the upper half of the 1.315 to 1.355 range that has held since July, but it owes that position more to the dollar's own wobble than to anything sterling has produced on its own account. A construction PMI that clears 40 would be the first purely domestic reason cable has had in over a week to test 1.35 again; a miss, paired with any stabilisation in the dollar once the tech selloff runs its course, would put 1.34 and the 1.335 reference beneath it back in play.

This morning's dollar index sits at 99.84, essentially pinned to Tuesday's close, and the real information content this week is not in the currency pair but in the labour data still working through the system. Wednesday's ADP print showed private employment rising just 44,000 in July, badly missing the 70,000 consensus and barely half of June's already-revised-down 95,000, and markets shrugged it off far more than the number deserved because equities and commodities were absorbing the Hormuz headlines at the same time.

That gap between what the data said and how markets reacted gets tested again this afternoon, when initial jobless claims for the week to 1 August land alongside continuing claims, both a rehearsal for tomorrow's non-farm payrolls, where consensus sits at a similarly soft 80,000. The Fed itself is not offering a clean signal to trade against. Governor Lisa Cook struck a hawkish note overnight, saying she would support a rate hike if inflation fails to ease even though she judged the bar to act could be low, while San Francisco's Mary Daly said she backed last month's hold but wants more data before September and is ready to act aggressively if inflation momentum rebuilds.

Layered on top of a genuinely split committee is a Fed chair, Kevin Warsh, reportedly taking frequent informal calls from the White House, according to the Wall Street Journal, a detail that adds political noise to a policy debate that was already unsettled before it arrived. Gold is the asset telling the more interesting story. Bullion surged more than 4% on Wednesday, its best single session since February, and has only pulled back modestly this morning even as the ten-year Treasury yield holds near 4.62%, down from Monday's 18-month high of 4.75%.

An asset that typically fades when risk appetite is climbing has not faded this week, which suggests part of the market is still hedging against the Hormuz optimism and the Fed's mixed signals rather than treating either as resolved. The same caution is visible in equities: the S&P 500 opened at a fresh intraday record on Wednesday but closed essentially flat, and chip stocks led it lower into the close, a pattern that has continued into Thursday's Asian session with semiconductor futures down and AMD's shares off nearly 7% despite record quarterly revenue.

The dollar index at 99.84 sits at the low end of the 99.5 to 102 range that has framed the summer, a level it has visited and held twice before. A soft claims print this afternoon, on top of Wednesday's ADP miss, would tilt the balance toward Friday's payrolls disappointing too and open a retest of 99.5, with 98.5 the next reference beneath it. A hawkish surprise from claims, or Cook's tone hardening further among her colleagues, is the more likely route back through 100, and either way tomorrow's number decides which side of that range holds.

The rand's own analyst debate has quietly shifted this week, from a currency priced almost entirely off oil and Hormuz headlines to one where strategists are increasingly asking whether gold or crude is doing more of the work. USD/ZAR eased to 16.38 in yesterday's session, extending its recovery from the 16.98 three-month low touched on 24 July, and the honest answer from most desks is that both commodities are pulling in the rand's favour at once this week, which is not the usual pattern.

Gold near record levels lifts South Africa's income side directly, since mineral and gold exports have been the standout contributor to a current account surplus that widened to 2.4% of GDP in the first quarter, the largest since 2021. Brent holding under $80 works in the rand's favour from the other direction, easing the import bill on the country's largest single line item rather than adding to it the way a supply-shock spike would. The two forces rarely align this cleanly, and when they do, the rand tends to borrow strength from both without needing a domestic policy catalyst of its own, which is exactly the position it is in today.

That absence of a domestic lever is the caveat sitting underneath the consensus. The Reserve Bank held the repo rate at 7.00% on a 4-2 vote on 23 July and does not meet again until September, by which point an August CPI print carrying this month's fuel pass-through will already be in the data, and July's factory PMI, a tenth straight month below 50, is a reminder that the currency's support is coming entirely from trade flows and global risk sentiment rather than from anything the SARB has signed off on.

USD/ZAR at 16.38 sits in the stronger half of the 16.30 to 16.98 range that has held since late July, and the dual commodity tailwind argues for staying there rather than drifting back to the middle. But it is a favour with a short lease: if gold's four percent spike keeps cooling, or the Hormuz route agreement firms into something that lets Brent retest the mid-$80s, the rand would be relying on the tailwind fading faster of the two, and 16.98 would come back into view without the SARB standing anywhere nearby to slow it.

The number that captures Thursday morning better than any headline is AMD's: record $11.5 billion in quarterly revenue and sales up roughly 50% year on year, delivered alongside a share price that still fell almost 7%. That is not a company missing; it is a market deciding that even a genuine beat is not enough when the AI trade has run this far, and the same scepticism has spread across Asian chipmakers this morning, with a broader semiconductor gauge down more than 1% and South Korea's KOSPI extending losses toward 4.5% on the sell-off.

SpaceX is the other name doing the damage, down some 14% in early trade despite beating on earnings, as roughly $101 billion of shares became eligible for trading after an IPO lock-up expiry, a supply overhang that has nothing to do with the company's fundamentals and everything to do with mechanical selling pressure. Nvidia has been the exception rather than the rule, climbing even as its peers fall, which says more about how selective the unwind is than about how broad it is.

None of this is happening in isolation from the geopolitical calm. Iran and Oman agreed the coordinates of a shipping route through the Strait of Hormuz on Wednesday, a genuine step, but Tehran was explicit that the agreement does not amount to a full reopening, and a senior Gulf official put the odds of a fuller deal by Friday at only fifty-fifty. Brent has held just under $80 rather than extending Tuesday's slide, gold has given back only a little of Wednesday's four percent surge even as the ten-year Treasury yield sits well off its Monday high, and the S&P 500 and Dow both closed at fresh records on Wednesday even as the session's own momentum faded into the close.

Brent at $79.98 is essentially flat against Wednesday's close and sits near the bottom of the range that has held since the Bessent comments first moved the market, a level from which the next decisive move depends on confirmation rather than rhetoric. A finalised Hormuz agreement in the next two days plausibly tests the low $70s, given how much of the physical rerouting priced in an indefinite disruption; a repeat of the denial-and-rebound pattern already seen once this week sends crude back through $85 quickly. For risk assets more broadly, the AI-linked wobble is the more immediate variable, and a market that cannot hold a beat like AMD's is a market still working out how much of this month's record-setting run it actually trusts.