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What’s happening: The British pound recorded losses against the US dollar and euro on Monday.
What happened: The sterling fell after gaining for two straight days amid prospects of interest rates in the UK remaining higher than other major economies during 2024.
The British pound has been one of the best performing G10 (Group of Ten) currencies this year.
Why it matters: Inflation has remained more stubborn in the UK than in the US and Eurozone. The latest data showed UK’s core inflation, excluding food and energy prices, at 5.7%, higher than 4% in the US and 3.6% in the Eurozone.
The UK also reported a decline in GDP by 0.3% in October. However, recent data showed some uptick in business activity in the UK. The S&P Global/CIPS UK Composite PMI climbed to from 50.7 in November to 51.7 in December, notching the strongest reading in six months.
Traders are widely expecting the European Central Bank and the US Federal Reserve to begin cutting interest rates as early as March. In the UK, a rate cut is now fully priced in for June.
The Bank of England is likely to lower rates more gradually. There are speculations of the BoE trimming interest rates by around 80 basis points (bps) in 2024, while the Fed and ECB are expected to reduce rates by 150 bps.
The US dollar held mostly steady on Monday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose slightly to 102.56.
The GBP/USD forex pair has gained around 4.6% year to date, just behind the Swiss franc, which has added around 6.6% this year.
The GBP/USD forex pair fell around 0.3% to 1.2649 on Monday, while the GBP/EUR declined by around 0.5% to 86.38.
The FTSE 100 index gained 0.5% to close at 7,614.48 on Monday, outperforming the other European markets, which ended in the red.
What to watch: Investors await the release of economic data on inflation rate and producer price inflation from the UK on Wednesday. UK’s inflation rate had eased to 4.6% in October and is expected to fall further to 4.3% in November.
Factory gate prices of goods produced by UK manufacturers, which declined by 0.6% year-over-year in October, is projected to ease another 0.7% in November.
The release of data on CBI industrial trends orders, due to be released on Tuesday, will also remain in focus.
Context: Wall Street stocks closed mostly higher on Monday amid an increase in crude oil prices.
Details: Major US indices are on course to closing the year on a strong note, with signs of easing inflation triggering speculations of the Fed beginning to cut interest rates as early as March next year.
The Dow Jones index surged to a record high for the fourth session in a row, while the S&P 500 is also close to its strongest settlement recorded in January 2022.
Geopolitical concerns sent crude oil prices higher on Monday, providing a boost to oil majors like ExxonMobil and Chevron. WTI crude oil for January delivery gained $1.04 to close at $72.47 per barrel. The energy sector was among the top performing sectors on the S&P 500 on Monday, adding around 0.8% during the session.
The NAHB/Wells Fargo housing market index surged to 37 in December, from the previous month’s reading of 34. The figure also came in higher than the consensus estimates of 36.
Shares of United States Steel surged to more than a 12-year high on Monday, after Japan’s Nippon Steel announced plans to buy the company in a $14.9 billion transaction.
The Dow Jones index gained 0.86 points to close at 37,306.02, while the S&P 500 added 0.45% to reach 4,740.56 and the Nasdaq 100 jumped 0.64% to settle at 16,729.80 on Monday.
What to watch: Investors await the release of economic data on building permits and housing starts from the US today. Privately-owned housing units authorised by building permits, which increased by 1.8% to an annual rate of 1,498,000 in October, is expected to decline by 1.2% in November.
Analysts expect housing starts to decline 0.8% in November, compared to a 1.9% increase in October. Data on PCE price index, initial jobless claims and GDP growth rate, will also remain in focus this week.
Other Markets: European indices closed lower on Monday, with the DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.60%, 0.37% and 0.27%, respectively.
Russia has reportedly destroyed or damaged almost every building in the eastern Ukrainian city of Avdiivka. The news sent the RUB/USD forex pair higher this morning.
New Zealand’s ANZ Business Outlook Index increased to 33.2 in December, from 30.8 in the prior month. This being the eighth straight month of improvement lent support to the NZD/USD forex pair.
Canada’s new home prices fell by 0.2% in November, versus a flat reading in October. However, the CAD/USD pair rose in forex trading this morning.
Germany’s Ifo Business Climate indicator surprisingly fell to a three-month low of 86.4 in December, versus 87.2 in November, exerting pressure on the EUR/USD forex pair.
Israel’s economy grew by an annualised rate of 2.5% in the third quarter, down a preliminary reading 2.8%, which sent the ILS/USD pair lower in forex trading this morning.
South Africa’s leading business cycle indicator, Eurozone’s inflation rate, Central Bank of Brazil’s Copom meeting minutes, Canada’s inflation rate, Raw materials price index and producer price inflation, US Redbook index, net long-term TIC flows, net purchases of treasury bonds and notes, net treasury international capital flows and API crude oil stocks change, as well as China’s foreign direct investment.
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