GBP/USD rises on BoE rate hike

The news shaping the markets today

Ukraine’s Colonel-General Oleksandr Syrskyi said that the country’s forces will launch a counteroffensive very soon to take back territory lost to Russia. The safe-haven US dollar index rose this morning.

Japan’s Jibun Bank services PMI climbed to 54.2 in March, versus a reading of 54.0 in February, lending support to the JPY/USD forex pair.

Ireland’s KBC Bank consumer sentiment index fell to a three-month low of 53.9 in March, after hitting an eight-month high of 55.6 in February. The news sent the EUR/USD pair lower in forex trading this morning.

Australia’s Judo Bank manufacturing PMI fell to 48.7 in March, from 50.5 in the earlier month, exerting pressure on the AUD/USD forex pair.

Poland’s unemployment rate came in unchanged at a nine-month high of 5.5% in February, with the number of registered unemployed rising by 7,200 to 864,800. The news sent the PLN/USD pair lower in forex trading this morning.

What’s happening: The GBP/USD forex pair recorded gains on Thursday, following the Bank of England’s rate decision.

What happened: The GBP/USD forex pair also received support from weakness in the US dollar with the Federal Reserve easing its rate hike moves.

Traders await major economic reports from the UK today, which are likely to give direction to the pound.

Why it matters: The Bank of England raised its key bank rate by 25bps to 4.25% at the March meeting, sending borrowing costs to new 2008-highs. The latest hike was in-line with expectations and the central bank’s commitment to bring inflation back to the 2% target.

UK’s inflation rate surprisingly accelerated to 10.4% year-on-year in February, from 10.1% in the previous month. The figure also exceeded market expectations of 9.9%, with an increase in food and energy bills. On a monthly basis, the country’s CPI inflation came in at 1.1%, higher than market estimates of 0.6%.

“The largest upward contributions to the monthly change in both the CPIH and CPI rates came from restaurants and cafes, food, and clothing, partially offset by downward contributions from recreational and cultural goods and services (particularly recording media), and motor fuels,” the UK Office for National Statistics said in its report.

The BoE’s latest rate hike followed similar moves by other major central banks, including the US Federal Reserve, which raised the fed funds rate by 25bps on Wednesday, and the ECB’s 50bps last week.

After falling earlier in the session, the US dollar index, which measures the greenback’s performance versus a basket of major peers, settled slightly higher at 102.53 on Thursday.

The GBP/USD forex pair remained volatile for most of the day on Thursday. The pair closed the day at 1.2287, up more than 0.1%, after hitting a seven-week high of 1.2341 earlier in the session.

The GBP/USD has emerged as the top performing G7 currency pair year to date, after declining sharply by around 10.6% in 2022, with the banking crisis exerting pressure on the US dollar.

The blue-chip FTSE 100 fell 0.89% to settle at 7,499.60 on Thursday. The more domestically focused FTSE 250 slipped 0.15% to close at 18,729.96.

What to watch: Traders await the release of manufacturing PMI, services PMI and retail sales data from the UK today. The S&P Global/CIPS UK manufacturing PMI is expected to increase to 49.9 in March, from 49.3 in February. The services PMI is projected to decline to 52.7, from the previous month’s reading of 53.5. Analysts expect retail sales to grow 0.3% in February, following a 0.5% increase in the prior month.

The markets today

US stocks will be in focus today ahead of a basket of economic reports

Context: US stocks closed higher on Thursday, after recording sharp losses in the previous session.

Details: The Dow Jones index rebounded on Thursday, after shedding 500 points in the previous session. Speculations of the US Federal Reserve ending its aggressive monetary tightening policy after the 25bps rate hike at its meeting on Wednesday.

The central bank’s rate decision and comments by Fed chief Jerome Powell weighed on US stocks on Wednesday.

The US announced a decline in initial jobless claims by 1,000 to 191,000 for last week, much better than expectations of 197,000. The current account deficit also narrowed to $206.8 billion in the final quarter of the last year.

Technology stocks were among the top performers on Thursday, with shares of Microsoft and Nvidia recording strong gains. Accenture’s stock rose more than 7%, after the company reported upbeat Q2 results. Darden Restaurants also reported better-than-expected results for its latest quarter.

The Dow Jones climbed 75.14 points, or 0.23%, to settle at 32,105.25 on Thursday, after adding more than 400 points earlier in the session. The S&P 500 gained 0.3% to reach 3,948.72, while the Nasdaq 100 jumped 1.29% to close at 12,729.23.

What are expectations: Investors await economic data on durable goods orders, manufacturing PMI and services PMI from the US today. Durable goods orders in the US, which contracted by 4.5% in January, are expected to grow 0.7% in February. The S&P Global US services PMI is projected to improve to 51 in March, from 50.6 in February, while the manufacturing PMI is expected to decline to 47 in March, from 47.3 in the previous month.

Other Markets: European indices closed mostly lower on Thursday, with the DAX 40 and STOXX Europe 600 Index down by 0.04% and 0.21%, respectively, and the CAC 40 up by 0.11%.

Support & resistances for today

Market snapshot

What else to watch today

Spain’s GDP growth rate and producer prices, Turkey’s tourist arrivals, France’s manufacturing PMI, services PMI and composite PMI, Germany’s manufacturing PMI, services PMI and composite PMI, Eurozone’s manufacturing PMI, services PMI and composite PMI, India’s foreign exchange reserves, value of loans and value of deposits, Brazil’s mid-month inflation rate, Mexico’s economic activity, Canada’s Retail sales, wholesale sales and manufacturing sales, as well as US composite PMI and Baker Hughes crude oil rigs.