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What’s happening: The British pound fell on Tuesday as investors digested the latest economic data from the UK.
What happened: Data released on Tuesday showed softness in UK’s labour market, which fuelled speculations of further interest rate cuts by the Bank of England this year.
Some strength in the US dollar also exerted pressure on the GBP/USD forex pair.
Why it matters: According to the Office for National Statistics, UK’s pay growth eased significantly, while the unemployment rate rose to its highest mark in around four years, during the three months to April.
The number of payrolled employees fell by 109,000, or 0.4%, to 30.2 million in May, compared to a 55,000 decline in the previous month. The latest reading represented a decline in employed workers for the seventh straight month and marked the sharpest decline since May 2020. UK’s labour market remained under pressure due to a huge rise in payroll taxes and the national minimum wage.
UK’s unemployment rate rose to 4.6% in the three months to April, from 4.5% in the previous period. This was the worst reading since the three months ending August 2021. Total average weekly earnings, including bonuses, rose 5.3% year-over-year to £720 per week in the three months to April, easing from the 5.6% gain recorded in the previous period.
The latest data showed signs of labour market activity slowing and indicated a further slowdown in the coming months, which would force the Bank of England to cut interest rates to boost economic activity.
The Bank of England is scheduled to announce its policy decision next week. Although the central bank is expected to hold rates at the meeting, markets now see a higher probability of additional rate cuts in 2025.
Some strength in the greenback also weighed on the GBP/USD pair on Tuesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained to 99.10.
The GBP/USD pair fell around 0.4% at 1.3500 on Tuesday, after hitting its weakest level since June 2. The EUR/GBP forex pair rose to 0.8465.
What to watch: With no major economic data scheduled for release today, investors await reports on GDP growth (1000 UAE Time), industrial production (1000 UAE Time) and balance of trade (1000 UAE Time) from the UK on Thursday. The economy, which grew by 0.2% in March, is expected to shrink by 0.1% in April.
Analysts expect UK’s industrial production to decline by 0.5% in April, following a 0.7% fall in March, while trade deficit is expected to widen to £4.2 billion in April, from £3.7 billion in the previous month.
Context: Japanese equity markets recorded gains this morning, with shares rising for the fourth session in a row amid signs of progress in trade talks between the US and China.
Details: Global market sentiment received a boost from further progress in negotiations between the world’s two largest economies, after US Commerce Secretary Howard Lutnick said discussions were going “really, really well” and could extend into today.
On the economic data front, Japan’s producer prices rose 3.2% year-over-year in May. This marked a slowdown from April’s 4.1% and represented the slowest pace of growth in eight months.
Bank of Japan Governor Kazuo Ueda on Tuesday said that the central bank remains ready to hike interest rates again in case core inflation rate does not reach close to the 2% level soon.
Tech stocks were among the top performers, with shares of Advantest, Lasertec and Disco recording sharp gains this morning.
Japan’s Nikkei 225 added around 0.49% to reach 38,399.33 this morning, while the broader Topix index rose by 0.05% to 2,787.57.
What to watch: Investors await the release of economic data on BSI large manufacturing (0350 UAE Time), foreign bond investment (0350 UAE Time) and stock investment by foreigners (0350 UAE Time) from Japan on Thursday. Japan’s Business Survey Index for large manufacturing firms, which declined by 2.4% in the first quarter, is expected to increase by 0.8% in the second quarter.
Bond investments by Japanese citizens living abroad fell by ¥118 billion, while stock investments by foreigners in Japan rose by ¥336.10 billion in the week ending May 31.
Other Markets: US trading indices closed higher on Tuesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.25%, 0.55% and 0.66%, respectively.
Although Russia and Ukraine exchanged more captured soldiers, as agreed during peace talks last week, widespread attacks continued. The news sent the safe-haven US dollar index higher in forex trading this morning.
New Zealand’s visitor arrivals surged by 18.8% year-over-year to 267,300 in April. Despite this representing the strong annual growth, total arrivals remaining 13% below the pre-pandemic levels exerted pressure on the NZD/USD forex pair.
Japan’s producer prices rose 3.2% year-over-year in May, following a 4.1% gain in the previous month, sending the JPY/USD pair lower in forex trading this morning.
Brazil’s annual inflation rate slowed to 5.32% in May, from 5.53% in the previous month. However, the recent reading remaining above the central bank’s upper target of 4.5% exerted pressure on the BRL/USD forex pair.
South Korea’s unemployment rate came in unchanged at 2.7% in May, which sent the KRW/USD pair lower in forex trading this morning.
UK’s 10-year Treasury Gilt auction (1300 UAE Time), Italy’s 12-month BOT auction (1310 UAE Time), Germany’s 10-year Bund auction (1330 UAE Time), US MBA mortgage applications (1500 UAE Time), inflation rate (1630 UAE Time), EIA crude oil stocks change (1830 UAE Time), EIA gasoline stocks change (1830 UAE Time), EIA Cushing crude oil stocks change (1830 UAE Time), EIA distillate stocks change (1830 UAE Time), 17-week Bill auction (1930 UAE Time), 10-year Note auction (2100 UAE Time) and monthly budget statement (2200 UAE Time), India’s money supply M3 (1530 UAE Time), Mexico’s industrial production (1600 UAE Time), Canada’s building permits (1630 UAE Time), 2-year Bond auction (2000 UAE Time), as well as Russia’s balance of trade (1700 UAE Time) and inflation rate (2000 UAE Time).
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