British Pound Spikes to a 4-week High

The news shaping the markets today

South Korea’s Composite Consumer Sentiment Index fell by 1.3 points to 103.1 in February, reaching the lowest level since last August and exerting pressure on the KRW/USD forex pair.

The Bank of Israel maintained its benchmark interest rate at a record low of 0.1% at its latest policy meeting. The ISR/USD pair declined in forex trading this morning.

Poland’s retail sales grew 20% year-over-year in January, following 16.9% growth in the earlier month. However, the PLN/USD forex pair remained subdued after the news.

Hong Kong’s unemployment rate came in unchanged at 3.9% for the three months ending January. The HKD/USD pair remained flat in forex trading this morning.

Eurozone’s IHS Markit services PMI rose to 55.8 in February, from 51.1 in the previous month. Despite the latest reading significantly beating the consensus estimate of 52, the EUR/USD forex pair declined slightly after the news.

What’s happening: The British pound gained significantly against the US dollar on Monday.

What happened: The sterling surged to a near four-week high to begin the last week of February, as traders assessed the Russian-Ukraine situation.

However, the British currency could not extend gains against one of its major rivals on Monday.

Why it matters: The British pound moved higher versus a weakening greenback on Monday amid prospects of a diplomatic solution to the ongoing Russian-Ukraine standoff.

With easing geopolitical tensions, safe-haven currencies like the US dollar came under pressure. France’s Emanuel Macron said that US President Joe Biden and Russia’s President Vladimir Putin had agreed to a summit over the Ukraine situation. However, the Kremlin mentioned there were no concrete plans of such a meeting.

“Because the markets are already very nervous due to high inflation, rising interest rates and upcoming rate hikes, the Ukraine-Russia conflict is temporarily acting as an amplifier of market movements,” Berenberg analyst Moritz Paysen said in a note to clients.

Investor sentiment for the British pound was further supported by UK Prime Minister Boris Johnson announcing to scrap the remaining covid-19 restrictions in the country, including the self-isolation requirement.

Economic data also supported sentiment for the sterling. The IHS Markit/CIPS services PMI for the UK rose to 60.8 in February, from 54.1 in the previous month, sharply above market views of 55.5. However, the country’s manufacturing PMI remained at a four-month low of 57.3 in February, unchanged from January’s level.

Recent data showed that UK consumer prices had risen at the fastest annual pace in around 30 years in January, which increased chances of the Bank of England hiking rates again at its March meeting. Markets are expecting a 50 bps rate hike next month.

The GBP/USD forex pair gained around 0.1% to settle at 1.3603 on Monday. The pair pared some gains towards the end of the session, after reaching its strongest mark since January 20 of 1.3643 earlier during the trading day.

However, the sterling could not record gains against the euro for most of the session but settled slightly higher at 83.22 pence on Monday.

The FTSE 100 fell 0.39% to close at 7,484.33 on Monday, reaching its weakest level since end-January.

What to watch: Investors await economic data on public sector net borrowing and CBI industrial trends orders from the UK today. The Confederation of British Industry’s order book balance is expected to increase to 25 in February, from 24 in January.

Markets will also keep an eye on announcements from the Bank of England and the US Federal Reserve, for further indications of their rate hike plans.

The markets today

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

Context: Wall Street stocks ended Friday in the red and markets remained closed on Monday for President’s Day.

Details: US stocks recorded losses for the second straight week, amid the ongoing Russia-Ukraine concerns. Market sentiment remained subdued on Friday, with wide speculations of Russia attacking Ukraine being imminent.

Positive economic data from the US was unable to lift investor risk appetite. The US reported 6.7% growth in existing home sales to an annual rate of 6.5 million in January. However, the index of leading economic indicators slipped 0.3% in the month.

The Dow Jones index fell 232.82 points, or 0.68%, to close at 34,079.18 on Friday. The S&P 500 declined by 0.72% to settle at 4,348.87, while the Nasdaq 100 closed lower by 2.97% at 14,009.54. All three major US indices lost more than 1% for the week.

What to watch: Investors await the release of data on home price index, manufacturing PMI and services PMI from the US today. The S&P CoreLogic Case-Shiller 20-city home price index, which surged 18.3% year-over-year in November, is expected to rise 18% in December. The IHS Markit US manufacturing PMI is projected to improve to 56 in February, from 55.5 in January, while the services PMI is expected to increase to 53 in February, from the previous month’s reading of 51.2.

Other Markets: European trading indices closed lower on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.39%, 2.07%, 2.04% and 1.30%, respectively.

Support & resistances for today

Market snapshot

What else to watch today

Turkey’s manufacturing confidence index and capacity utilization, Indonesia’s value of loans, Germany’s Ifo business climate indicator, Ifo current conditions and Ifo expectations, Italy’s inflation rate, South Africa’s unemployment rate and number of unemployed persons, Brazil’s FGV consumer confidence index, US composite PMI, Richmond Fed manufacturing index and CB consumer confidence, Canada’s ADP employment change, as well as Argentina’s balance of trade.

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