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What’s happening: The British pound recorded gains on Thursday, following the release of a survey from the Bank of England.
What happened: The GBP/EUR forex pair climbed to a two-week high on Thursday, after a BoE survey showed British companies eased expectations for selling price inflation.
However, prospect of the central bank’s continuing interest rate hikes limited the gains of the British currency.
Why it matters: Businesses projected 2024 output price inflation at 5.3% in the three months to June, according to the Bank of England’s monthly Decision Maker Panel. The figure was not only below the 5.4% reported in the three months to May, but also the lowest since March 2022.
One year ahead CPI (consumer price inflation) expectations eased to 5.7% in June, from 5.9% in May. However, three-year ahead CPI inflation expectations rose to 3.7% in June, up 0.2 percentage points from May.
The BoE closely monitors pricing expectations of businesses and consumers to decide on its future rate hikes. UK’s central bank has increased interest rates 13 times since late 2021 to 5%.
Markets now expect interest rates to peak early next year at around 6.5%, higher than previous expectations of rates peaking this year at 5.3%. Concerns around higher rates exerting further pressure on the British economy limited the gains made by the sterling on Thursday.
The S&P Global/CIPS construction PMI for the UK fell to 48.9 in June, from 51.6 in the prior month, and came in below market expectations of 51.0. This also marked the first contraction in the country’s construction sector in five months.
The GBP/USD gained around 0.3% to 1.2742, moving towards the 14-month high hit by the forex pair last month.
The GBP/EUR surged to its highest level since June 21 during Thursday’s session, but pared some gains to settle at 85.51 pence.
What to watch: Investors await the release of economic data on house price index and labour productivity from the UK today. The Halifax house price index in the UK, which came in unchanged in May, is expected to decline 0.1% in June. Analysts expect labour productivity to decline by 1.4% in the quarter to March, versus a 0.4% increase in the prior period.
Traders will continue to monitor comments from Bank of England officials regarding rate hikes, which could significantly impact the sterling ahead.
Context: Wall Street stocks closed lower on Thursday as investors assessed the latest jobs data and remained cautious ahead of NFP data.
Details: Payroll processing firm ADP said on Thursday that private sector jobs had risen by 497,000 in June, the biggest monthly gain since July 2022. The latest reading came in sharply higher than the consensus estimates of 220,000 job adds, and above May’s figure of 267,000.
However, job openings in the US fell more than expected in May. The number of persons filing for jobless benefits grew by 12,000 to 248,000 in the latest week, versus market expectations of 245,000.
Sentiment was supported by the ISM services PMI rising to 53.9 in June, topping market estimates of 51.
Investors awaited the NFP report, as a hotter jobs market gives the US Federal Reserve more flexibility to continue hiking interest rates. The Fed is widely expected to announce another rate hike in July, after briefly pausing at their June meeting.
The Dow Jones fell 366.38 points, or 1.07%, to close at 33,922.26, while the S&P 500 lost 0.79% to reach 4,411.59. The Nasdaq 100 declined by 0.75% to settle at 15,089.45 on Thursday. The Dow and S&P 500 recorded their worst single-session performances since May.
What are expectations: The US economy had added 339,000 jobs in May, the most in four months and is expected to add another 250,000 jobs in June. Analysts expect the unemployment rate to remain unchanged at 3.7% in June. Average hourly earnings could rise by 4.1% year-over-year in June, following 4.3% growth in May.
Other Markets: European indices closed lower on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 2.17%, 2.57%, 3.13% and 2.34%, respectively.
Russia launched a deadly missile on an apartment building in Lviv in western Ukraine. Despite the ongoing turmoil, the safe-haven US dollar index fell slightly this morning.
The Philippines said its unemployment rate fell to 4.3% in May, from 6.0% in the year-ago period, lending support to the PHP/USD forex pair.
Japan’s average cash earnings surged by 2.5% year-over-year in May. The figure topping market expectations of 0.7% growth sent the JPY/USD pair higher in forex trading this morning.
South Korea posted a current account surplus of $1.9 billion in May, well above market estimates of a $650 million deficit, lending support to the KRW/USD forex pair.
Argentina’s industrial production grew by 1.1% year-over-year in May. However, this marked a slowdown from the 1.8% growth recorded in the earlier month and sent the ARS/USD pair slightly lower in forex trading this morning.
Germany’s industrial production, South Africa’s foreign exchange reserves, France’s balance of trade, current account and foreign exchange reserves, Italy’s retail sales, Singapore’s foreign exchange reserves, India’s foreign exchange reserves, Mexico’s inflation rate, car production and auto exports, Canada’s unemployment rate, employment change, average hourly earnings and Ivey Purchasing Managers Index, Brazil’s car production and new vehicle registrations, Russia’s foreign exchange reserves, US natural gas stocks change and Baker Hughes crude oil rigs, China’s foreign exchange reserves, as well as Spain’s consumer confidence.
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