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GBP/USD extends downswing on economic data

 

Thursday, October 26, 2023

Today’s headlines

What’s happening: The British pound moved lower against the US dollar on Wednesday, as investors assessed the latest economic reports.

What happened: The GBP/USD had recorded its biggest single-session decline in more than a week on Tuesday.

The forex pair extended losses for another session on Wednesday on concerns around the state of the British economy.

Why it matters: Data released on Tuesday showed a loosening labour market. Data from the Office for National Statistics showed the unemployment rate remaining unchanged at 4.2% even under its new calculation, while the number of employed people declined by 82,000.

The S&P Global services Purchasing Managers’ Index declined to 49.2 in October, from 49.3 in the prior month, recording the weakest reading since January.

The gloomy data supported speculations of the Bank of England keeping interest rates unchanged at its policy meeting next week.

Traders who had earlier priced in interest rates peaking above the 6% level, now believe that rates have already peaked, amid easing inflation and subdued economic growth.

Headline inflation for the UK remained at 6.7% last month, after climbing to a 41-year high of 11.1% in October 2022.

Strength in the US dollar also exerted pressure on the GBP/USD. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.3 % to reach 106.53 on Wednesday, notching its strongest level in around one week.

The GBP/USD forex pair fell around 0.4% to 1.2113 on Wednesday, after declining 0.7% in the prior session to record its biggest single-day decline in more than a week.

The British currency also declined around 0.1% to 87.24 pence versus the euro on Wednesday, after hitting a 5.5-month low of 87.40 pence on Friday.

What to watch: Investors await the Bank of England’s interest rate decision on November 2. The BoE has kept its policy interest rate unchanged at 5.25% at its September meeting, holding borrowing costs at their highest level since 2008.

The release of data on CBI distributive trades will also remain in focus today. The Confederation of British Industry’s monthly balance of retail sales, which rose by 30 points to a reading of -14 in September, is expected to improve to -10 in October.

The markets today

Facebook-parent Meta Platforms will be in focus today after its third-quarter earnings release

Context: Shares of Meta Platforms fell in after hours trading on Wednesday, despite the company reporting upbeat quarterly results.

Details: The Facebook parent reported double-digit growth in revenues, which was the strongest surge since 2021, amid sharply improving advertising sales.

Group revenues climbed 23.2% to $34.15 billion in the third quarter, ahead of Wall Street expectations of $33.58 billion. As much as $33.64 billion of the company’s overall revenues were generated by the new ‘Family of Apps’ unit that Meta created last year.

The company’s profits for the three months ending March came in at $4.39 per share, almost double from the year-ago level and easily topping the consensus estimates of $3.63 per share.
Its ad impressions climbed 34%, while the average price per ad fell 16%. Monthly active users across Meta’s ‘Family of Apps’ rose 7% year-over-year to 3.96 million, while daily active users increased 7% to 3.14 billion.

The social media company’s operating margins expanded to 40%. The company also lowered its forecast for total expenses in 2023 to between $87 billion and $89 billion, compared to its prior range of $88 billion to $91 billion. Management also projected total expenses of $94 billion to $99 billion for 2024, higher than the 2023 level due to increased operating costs and higher payroll expenses.

How shares responded: Shares of Meta Platforms fell 3.4% to $289.50 in the extended trading session on Wednesday, following the release of quarterly results. The stock also lost 4.2% in regular trading hours on Wednesday.

What to watch: Investors will watch the upcoming holiday shopping season and the main economic data releases.

Other Markets: European indices closed higher on Wednesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.33%, 0.08%, 0.31% and 0.04%, respectively.

The news shaping the markets

Arms makers are reporting better-than-expected profits as the US and other Western nations replenish military equipment sent to Ukraine. The news sent the safe-haven US dollar index higher this morning.


Australia’s export prices fell by 3.1% during the three months to September, following an 8.5% decline in the prior period. This exerted pressure on the AUD/USD forex pair.


South Korea’s economy grew 0.6% in the September quarter. This being at the same pace as the earlier quarter sent the KRW/USD pair lower in forex trading this morning.


Russia’s industrial production increased by 5.6% year-over-year in September, accelerating from 5.4% a month ago, which lent support to the RUB/USD forex pair.


The Energy Information Administration said US crude oil inventories had increased by 1.371 million barrels in the week ending October 20, following a decline of 4.491 million barrels in the prior period, which sent the WTI crude oil futures lower this morning.

What else to watch today

Spain’s jobless rate, South Africa’s producer price inflation, Canada’s manufacturing sales, CFIB business barometer long-term optimism index and average weekly earnings, Turkey’s gross foreign exchange reserves and Central Bank of Turkey’s interest rate decision, Brazil’s current account, producer prices, consumer price inflation and foreign direct investment, Mexico’s unemployment rate, US durable goods orders, GDP growth rate, goods trade balance, initial jobless claims, wholesale inventories, continuing jobless claims, core price index for personal consumption expenditures, pending home sales, natural gas stocks change and Kansas City Fed’s manufacturing production index, as well as Argentina’s consumer confidence indicator.


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