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Trends & Analysis
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Wednesday, July 12, 2023

Today’s headlines

What’s happening: The British pound recorded gains on Tuesday following the release of labour market data.

What happened: The hot labour report from Britain increased prospects of further rate hikes by the Bank of England.

The sterling jumped to its highest level in more than a year against two major peers on Tuesday.

Why it matters: The British pound has been the top performing major currency versus the US dollar so far in 2023, gaining around 6.6% with soaring inflation raising speculations of the Bank of England raising interest rates much more than other major central banks around the world.

UK’s consumer price inflation came in at 8.7% in May, which is higher than any other major economy.

Markets are currently expecting another 140 basis points rate hikes from the British central bank, much higher than for the US Federal Reserve and European Central Bank.

Higher interest rates generally provide a boost for the country’s currency in the short term, but have a negative impact on economic growth, which weighs on the currency in the longer term.

Data released on Tuesday showed UK’s average weekly earnings, including bonuses, increased by 6.9% year-over-year to £651 per week in the three months to May, recording the highest surge since the three months to August 2021. Regular pay, excluding bonus payment, rose 7.3% to £607 per week, the same as in the prior month. Economists were expecting a lower increase of 7.1%, which gives the central bank more flexibility to hike rates for the 14th straight time at its August meeting.

UK’s unemployment rate rose to 4.0% in the three month to May, above market estimates of 3.8%. The number of unemployed people grew by 77,000 to 1.37 million.

Weakness in the greenback also lent support to the sterling on Tuesday, with the US dollar index declining to a two-month low during Tuesday’s session.

The GBP/USD forex pair jumped to 1.2932, its strongest level since April 2022, on Tuesday.
The British currency climbed to its highest level since August 2022 against the euro.

London’s FTSE 100 edged higher by 0.12% to close at 7,282.52 on Tuesday, following an increase in commodity-linked shares.

What to watch: Traders await the release of US Consumer Price Index on Wednesday, as a higher-than-expected reading could exert pressure on the British currency.

The markets today

Gold will be in focus today after closing higher on Tuesday

Context: Gold prices moved higher on Tuesday amid weakness in the US dollar and a decline in bond yields.

Details: The US dollar came under pressure on Tuesday ahead of the much-awaited consumer price index data, which is expected to significantly impact the upcoming Fed decision.

The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell more than 0.2% to 101.73 on Tuesday. Benchmark 10-year US Treasury yields also moved lower during the session.

Markets expect the US Federal Reserve to hike rates by 25 basis points at its upcoming meeting, especially after the strong US jobs report released on Friday. Higher interest rates generally weigh on the yellow metal, as it raises the opportunity cost of holding non-yielding gold.

Gold futures rose $6.10, or 0.3%, to settle at $1,937.10 per ounce on Tuesday, recording the highest closing in around three weeks. However, silver futures declined 7 cents to $23.28 an ounce, while September copper slipped 1 cent to settle at $3.77 a pound on Tuesday.

What are expectations: The release of inflation data from the US will remain in focus today. On a monthly basis, the CPI is likely to rise 0.3% in June, higher than the 0.1% increase recorded in May. Annual inflation rate in the US is expected to ease to 3.1% in June, from previous reading of 4%.

Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.93%, 0.67% and 0.49%, respectively.

The news shaping the markets

NATO leaders started their two-day summit but failed to give a timeline to Ukraine to join the security alliance. The news sent the safe-haven US dollar index lower this morning.


Reserve Bank of New Zealand held its official cash rate at 5.5% during its latest meeting, lending support to the NZD/USD forex pair.


Japan’s producer prices rose 4.1% year-over-year in June, easing for the sixth month in a row, which sent the JPY/USD pair higher in forex trading this morning.


South Korea’s unemployment rate rose to 2.6% in June, from 2.5% in the earlier month. However, the country’s economy adding jobs for the 28th consecutive month lent support to the KRW/USD forex pair.


Brazil’s annual inflation rate slowed to 3.16% in June, from 3.94% in the earlier month, sending the BRL/USD pair higher in forex trading this morning.

What else to watch today

UK’s financial stability report, Spain’s consumer price index, Turkey’s industrial production, US MBA mortgage applications, crude oil inventories, gasoline stocks change, distillate stocks and WASDE report, India’s money supply M3, inflation rate, industrial production and manufacturing production, Mexico’s industrial production, Russia’s balance of trade and inflation rate, Bank of Canada’s interest rate decision, Brazil’s industrial entrepreneur confidence index, as well as Saudi Arabia’s industrial production.


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