The Daily Brief

Sterling closed Wednesday's session around 1.3510, holding just below the highest level it has reached since mid-July, and it did so on the back of the softer dollar rather than anything generated at home. Overnight it has given a little of that back to 1.3488 as the dollar firmed, which is the pattern that has defined cable for six weeks: it rises when Washington disappoints and stalls when Washington does not.

That changes at 07:00 BST. The preliminary reading of second-quarter GDP is the first properly hard measure of what the energy shock has done to UK output, with consensus clustered near 0.4 per cent on the quarter against 0.6 in the first three months of the year, and the Bank's own working assumption a gloomier 0.3. Alongside it come the June monthly GDP and industrial production figures, which will show whether the stockpiling that has flattered manufacturing through the second quarter is still doing so.

The composition matters more than the headline number. Growth has been carried by services and by factories building inventory ahead of expected shortages, both of which borrow from future quarters rather than signalling durable demand. A print at 0.4 that leans on inventory accumulation would read materially weaker than the same figure driven by household consumption, and the Bank has been explicit that it is watching the underlying momentum rather than the quarterly stamp.

That is the tension the pound cannot resolve on its own. Bank Rate sits at 3.75 per cent after July's hold, with the Governor still describing disinflation as on track, and June CPI having eased to 2.6 per cent. A soft growth print sharpens the case for the gradual easing that has been priced, but it does so at the exact moment renewed energy costs have narrowed the room to lean dovish. Add the new administration's early fiscal loosening, modest so far but watched closely, and gilt-holders have a reason to price a premium that currency markets have not yet demanded.

At 1.3488, cable sits in the upper third of the 1.315 to 1.355 band that has framed it since midsummer, roughly half a big figure below the 1.355 ceiling it has failed to clear on three attempts this quarter. With the dollar firm into the US data and the growth print skewed toward disappointment, the asymmetry runs toward a retreat into the mid-1.34s, and a clean break of 1.355 would need an upside surprise on GDP and a soft PPI arriving together rather than either alone.

The number did what it was supposed to do and the dollar ignored it. July CPI rose 0.1 per cent on the month and eased to 3.4 per cent on the year, core came in at 0.2 per cent and 2.5 per cent, and every one of those figures matched consensus. Futures cut the odds of a September hike to 40 per cent from 44 before the release and 55 a week ago, weight shifted toward October instead, and the ten-year fell to 4.68 per cent from 4.73. The dollar index dipped to 99.67 on the print, then recovered through the session and now sits at 100.01.

That reversal is the informative part. A currency that firms while its own rate expectations are being marked down is trading something other than the next meeting, and in this case it is the relative path: US yields remain well above peers, the Japan carry trade has been rebuilding since the intervention squeeze in late July, and the inflation risk sitting in oil has not gone away just because one month's shelter reading behaved. The index has now been range-bound for close to a fortnight and needs a catalyst rather than a confirmation.

Today supplies one at 13:30 BST. Producer prices are the pipeline measure and feed directly into the PCE deflator the Committee actually targets, so a July print that cools as expected, from June's 5.5 per cent headline and with core seen easing toward roughly 4.2 per cent from 4.7, would extend the disinflation read from consumer to producer level. A firmer number would do something more awkward: reopen the argument that the energy pass-through is still working its way through, on the same morning claims are expected at 203,000 and a labour market that shed 23,000 jobs in July gets another data point.

The Committee is not unified on any of this. July's decision to hold at 3.50 to 3.75 per cent carried three dissents for an immediate increase, which means the hawkish minority was established before the payrolls miss and has not been dislodged by two months of benign inflation prints. With forward guidance stripped out, that split leaves the market pricing a distribution rather than a decision, and each release moves the whole curve more than its own information content warrants.

At 100.01 the index sits fractionally above the psychological 100 line and mid the 99 to 102 band it has held all summer, having twice failed to hold above 100 in the past three weeks. A cool PPI puts the retest of the 99 lows back in play; a firm one gives the dollar the yield support that the payrolls miss took away, and the asymmetry today lies less in the direction than in the fact that the index has no range conviction left to absorb a surprise.

Sixteen fifteen is the number worth pausing on. The rand traded sideways through Wednesday's session near 16.20 and has firmed overnight to 16.15, which puts it at its strongest against the dollar since the first week of July and takes it clean through the level that had held as the strong end of its post-sell-off range.

Nothing domestic did that. Gold near $4,400 has done most of the work, supported by the same reduction in Fed hike expectations that failed to weaken the dollar, and crude turning lower has relieved the import bill of an economy that buys all its refined fuel. Both are external, both were handed over rather than earned, and both are contingent on decisions taken in Washington and Tehran rather than in Pretoria.

Which sits awkwardly against the domestic picture as it actually stands. Tuesday's labour report put second-quarter unemployment at 33.6 per cent, with the job losses concentrated in mining and manufacturing, the two sectors that would normally translate a gold rally into export earnings and employment. A currency strengthening on the price of a commodity while the industry that extracts it shrinks is a fragile arrangement, and it is worth remembering that this is the same rand that touched 16.98 three weeks ago on very similar fundamentals.

The Reserve Bank has limited scope to lean either way. The repo rate has been on hold at 6.75 per cent since July, taken with headline inflation at 5.0 per cent and core at 4.1, both above the upper bound of the three per cent target range the Bank has committed to defending. An importing economy getting cheaper crude and a firmer currency is genuine disinflationary help, but it arrives through channels the Bank does not control, which makes it difficult to build a policy path on.

At 16.15, USD/ZAR now sits below the 16.20 to 16.98 range that framed it through late July, roughly 5 per cent stronger than the July low and close to 4 per cent stronger than the 2026 average near 16.43. For anyone holding rand-denominated obligations, the level is the most favourable it has been in six weeks, but the two supports underneath it are a metal price at multi-week highs and a geopolitical negotiation that has reversed twice in a month, and the asymmetry from here runs toward a retrace to 16.50 rather than a continuation, unless the Hormuz process delivers more than a gesture.

The Hormuz standoff has produced its first concrete concession, and it came from the Gulf rather than Washington. Reports that gained traction overnight indicate the UAE released a further tranche of Iran's frozen assets on 11 and 12 August, including gold valued at around $212 million, which puts a tick against one of the five conditions Tehran set for reopening the strait alongside lifting the naval blockade, ending sanctions, withdrawing US forces and paying reparations.

Oil read it immediately. Brent has fallen 1.19 per cent to $87.92 after closing Wednesday at $88.98, ending a six-session climb that had carried it to $90 intraday and had been driven entirely by the assumption that no deal was coming. One asset transfer does not restore shipping, and the harder US position on reparations has not moved, but the market had priced a complete stalemate and has now been shown a mechanism by which conditions get satisfied piecemeal.

Equities have taken the combination of that and the in-line CPI and run with it. The Topix reached a record high overnight and the Nikkei added around 1.6 per cent as chip stocks tracked a sharp semiconductor rally on Wall Street, the Kospi jumped between 3.5 and 4 per cent on heavy foreign buying in Samsung and SK Hynix, and the broad Asia-Pacific gauge excluding Japan rose 1.05 per cent for a second consecutive day of gains. The S&P 500 closed within reach of a record and the Nasdaq 100 at a one-month high, though futures softened after Cisco's results.

The cross-asset picture is more coherent than it has been for a fortnight, and that is precisely what makes it worth testing. Yields falling, oil falling, and equities rising is the disinflation trade reassembling itself, and it rests on two assumptions: that the Hormuz process continues in the direction it turned overnight, and that this afternoon's producer prices confirm rather than contradict yesterday's consumer print. Japan's own July PPI, at 7.2 per cent against a 7.4 forecast but with import prices up 29.1 per cent in yen terms, is a reminder of how much imported inflation is still in the system.

Brent at $87.92 sits roughly 40 per cent above the $69 low struck on 2 July and 16 per cent below the $105 peak of 23 July, and just above the $85 average the official third-quarter outlook assumes and the $87 penciled in for the year as a whole. That leaves the current level almost exactly where the base case says it should be, which is unusual for this market and unlikely to last: with production not expected back near pre-conflict levels until early 2027, the balance of risk still leans toward escalation reasserting itself faster than diplomacy compounds.