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What’s happening: The British pound rose versus the US dollar on Friday, as investors monitored the UK’s monetary policy outlook.
What happened: The GBP/USD forex pair tumbled to over a five-week low on Thursday but recovered on Friday.
Despite the upturn on Friday, the sterling recorded losses for the fourth week in a row amid prospects of increased rate cuts by the Bank of England this year.
Why it matters: The British pound has been under pressure lately amid some volatility in forex trading globally, after the US released weaker-than-expected jobs data last week, which stoked concerns over a slowdown in the country’s economic growth and fuelled speculations of rate cuts by the Federal Reserve in September.
The British pound had fallen to around a one-month low when the Bank of England slashed its benchmark interest rate for the first time since 2020, narrowing borrowing costs to 5%. The EUR/GBP forex pair also jumped to a more than three-month high last Thursday, but pared gains later.
Traders now expect the Bank of England to cut interest rates by another 42 basis points (bps) by the end of 2024. Meanwhile, the Federal Reserve is expected to cut rates by around 103 bps by the end of this year.
Some weakness in the US dollar also lent support to the GBP/USD pair on Friday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.1% to 103.14 on Friday. However, the index recorded gains for the week, exerting pressure on the British pound.
The British pound declined to 1.2666 to over a five-week low on Thursday but settled higher by around 0.5% due to weakness in the US dollar.
The GBP/USD forex pair gained around 0.1% to 1.2761 on Friday, but recorded losses for the fifth straight week.
What to watch: Investors await the release of jobs data on Tuesday. The UK’s unemployment rate, which came in unchanged at 4.4% from March to May, is expected to increase to 4.5% in June. Regular pay in the UK, excluding bonus payment, which rose 5.7% year-over-year to £643 per week during the three months to May, is projected to rise by 4.6% during the three months to June.
Analysts expect the number of employed people to decline by 35,000 in the three months to June, compared to a gain of 19,000 in the three months to May.
Context: Equity markets in the US settled higher on Friday, extending their rebound from Monday’s big selloff.
Details: Last week proved to be the most volatile one for the equity markets so far this year. The S&P 500 shed 3% on Monday to record its worst session since 2022. Risk sentiment was hurt by disappointing payrolls data from the US, which raised concerns over a slowdown in the US economy and the Fed being too late in cutting interest rates.
US stocks staged a strong rebound later in the week, following the release of weekly jobless claims data, which eased concerns over the US economy. The S&P 500 jumped 2.3% on Thursday to record its strongest session since November 2022.
Shares of Doximity jumped around 39% on Friday, after the company reported stronger-than-expected first-quarter results and issued upbeat revenue guidance for the year. Expedia’s stock surged more than 10% on Friday, after the company reported upbeat second-quarter results.
The S&P 500 gained 0.47% to close at 5,344.16 on Friday, while the Dow Jones index rose by 51 points, or 0.13%, to close at 39,497.54. The Nasdaq 100 jumped 0.54% to settle at 18,513.10 on Friday.
Week to date, the S&P 500 has lost 0.04%, while the blue-chip Dow Jones index is down 0.6%.
What to watch: Investors await the release of economic data on US consumer inflation expectations for the year ahead and government budget today. US consumer inflation expectations for the year, which fell for a second straight month to 3% in June, from 3.2% in the prior month, are expected to remain at 3% in July.
Analysts expect the US government to record a budget deficit of $254.3 billion in July.
Other Markets: European indices closed higher on Friday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.28%, 0.24%, 0.31% and 0.57%, respectively.
Moscow’s Ministry of Defence said its military forces had destroyed 14 drones and four missiles launched by Ukraine on Kursk. The news sent the RUB/USD lower in forex trading this morning.
Ireland’s BNP Paribas Real Estate Construction PMI rose to 49.9 in July, from 47.5 in June. The region’s construction PMI surging to the highest level since April lent support to the EUR/USD forex pair.
Saudi Arabia’s industrial production fell 4.0% year-over-year in June, compared to a 2.9% decline in the prior month. The region’s industrial output declining for the 14th straight month sent the SAR/USD pair lower in forex trading this morning.
China posted a current account surplus of $54.9 billion for the second quarter, narrower than the $59.3 billion surplus recorded in the year-ago period. The region’s services account deficit rose to $61.7 billion, exerting pressure on the CNY/USD forex pair.
Indonesia’s motorbike sales climbed 26% year-over-year in July, compared to a 3.5% gain in the prior month, sending the IDR/USD pair higher in forex trading this morning.
Germany’s wholesale prices, Turkey’s unemployment rate, labour force participation rate and retail sales, India’s industrial production, consumer inflation rate and manufacturing production, Mexico’s consumer confidence, Canada’s value of building permits, Germany’s current account, Russia’s balance of trade, Brazil’s industrial entrepreneur confidence index and Central Bank of Brazil’s focus market readout, as well as China’s new yuan loans, money supply M2, outstanding yuan loan growth and total social financing.
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