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What’s happening: The British Pound started the new week with losses, as investors monitored the monetary policies of major central banks.
What happened: The sterling continued its downtrend on Monday, after staging its steepest single-session decline since April on Thursday, following comments from Bank of England Governor Andrew Bailey.
The US dollar continued to edge higher after recording sharp gains on Friday following the release of the NFP report.
Why it matters: Last week, Bank of England Governor Andrew Bailey said the country’s central bank could announce more aggressive interest rate cuts if inflation data remained positive.
Markets had so far been expecting the Bank of England to cut interest rates slower than the European Central Bank and US Federal Reserve. The latest remarks from Bailey challenged that view.
Data released on Monday showed the UK’s Halifax House Price Index climbed 4.7% year-over-year in September, following a 4.3% increase in August. The figure marked the steepest rise since November 2022. Compared to the previous month, UK’s house prices rose 0.3%, higher than market estimates of 0.2%.
Meanwhile, the US reported a strong NFP (nonfarm payrolls) report on Friday, showing 254,000 job adds in September. This was higher than the 159,000 recorded in August and topped market estimates of 140,000. The latest job adds were the strongest in six months and higher than the monthly average of 203,000 over the past 12 months.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, edged higher to 102.54 on Monday, after recording sharp gains on Friday.
Heightened geopolitical concerns also lent support to safe havens, like the US dollar, which exerted further pressure on the GBP/USD forex pair.
The GBP/USD fell around 0.3% to 1.3082 on Monday, after falling to 1.3066 on Friday to record its weakest level since September 12. The EUR/GBP forex pair gained around 0.3% to 0.8391.
London’s FTSE 100 added 0.28% to close at 8,303.62 on Monday.
What to watch: With no major economic data releases from the UK today, markets will monitor CPI and jobs data, due for release next week. Data on GDP growth rate, industrial production and balance of trade, scheduled for Friday, will also be in focus.
Markets will closely watch geopolitical developments, as the British pound is considered a risky currency compared to the safe-haven greenback.
Context: Equity markets in the US settled lower on Monday, amid rising Treasury yields.
Details: The strong nonfarm payrolls report released by the US on Friday eased concerns around a slowdown in the economy.
However, US Treasury yields moved higher on Monday, as investors monitored the Federal Reserve’s future policy moves, which exerted pressure on the equity markets. The yield on the benchmark 10-year notes topped the 4% level for the first time in two months, while the 2-year yield also breached the 4% mark.
Markets were earlier expecting the Fed to cut interest rates by 50 basis points (bps) in November. With the job market remaining strong, traders now widely expect the US central bank to cut rates by only 25bps at its next policy meeting in November.
Shares of the rate-sensitive mega-caps fell. Shares of Tesla declined by around 3.7% Amazon shed around 3.1%.
Most sectors closed lower on Monday, with energy stocks bucking the overall market trend, gaining around 0.4% due to the surge in crude oil prices amid supply disruptions.
The Dow Jones index tumbled 398.51 points, or 0.94%, to close at 41,954.24 on Monday. The S&P 500 fell 0.96% to 5,695.94, while the Nasdaq 100 tanked 1.17% to settle at 19,800.74.
What to watch: Investors await the release of economic data on NFIB small business optimism index and balance of trade from the US today. The NFIB Small Business Optimism Index in the US, which fell to 91.2 in August, is expected to increase to 91.7 in September. Analysts expect the US trade deficit to narrow to $70.4 billion in August, from $78.8 billion in the previous month.
Other Markets: European indices closed mostly higher on Monday, with the CAC 40 and STOXX Europe 600 Index up by 0.46% and 0.18%, respectively, and the DAX 40 down by 0.09%.
Russia’s military forces captured the village of Hrodivka, which is close to the city of Pokrovsk in eastern Ukraine. The news sent the RUB/USD pair slightly higher in forex trading this morning.
The Philippines said its unemployment rate declined to 4% in August, from 4.4% in the year-ago month, lending support to the PHP/USD forex pair.
Australia’s NAB business confidence index improved to a reading of -2 in September, from -5 in August. However, this being the second straight month of a negative reading sent the AUD/USD pair lower in forex trading this morning.
Japan’s current account surplus widened to ¥3,803.6 billion in August, from ¥2,293.8 billion in the year-ago period. The latest reading also came in above market estimates of ¥2,921.9 billion, lending support to the JPY/USD forex pair.
South Korea’s current account surplus narrowed to $6.6 billion in August, from $8.97 billion in the previous month, which sent the KRW/USD pair lower in forex trading this morning.
Germany’s industrial production, France’s balance of trade and current account, US Redbook index, RealClearMarkets/TIPP economic optimism index and API crude oil stock change, Canada’s balance of trade, as well as Argentina’s industrial production.
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