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What’s happening: The British pound moved lower, following the Bank of England’s interest rate decision.
What happened: The GBP/USD forex pair fell to its weakest level since March after the BoE kept interest rates unchanged on Thursday.
British stocks outperformed the wider market after the central bank’s rate announcement.
Why it matters: The Bank of England’s Monetary Policy Committee voted 5-4 to hold its benchmark rate unchanged at 5.25% on Thursday. This marked the first time the central bank paused rate hikes in almost two years.
The BoE’s decision came a day after the UK reported that inflation had eased more than projected in August. Consumer price inflation in the country fell to 6.7% in August, from 6.8% a month ago. The figure came in better than market expectations of 7.0%.
The latest reading marked the lowest inflation rate since February 2022, amid a slowdown in food inflation. Core inflation also eased to 6.2% year-over-year in August, from 6.9% in July.
UK’s inflation rate still held well above the central bank’s 2% target and was the highest among major economies.
Traders now expect the BoE to increase interest rates to 5.37% by early 2024.
The GfK Consumer Confidence indicator in the UK climbed to -21 in September, from -25 in the prior month, recording the strongest level since January 2022.
The GBP/USD forex pair fell around 0.4% to 1.2296, after hitting its weakest level since late March earlier in the session. The EUR/GBP forex pair gained around 4% to reach 86.73 pence.
London’s FTSE 100 index also pared some losses in early trading and briefly turned positive after the BoE’s rate announcement. However, the index closed lower by 0.69% at7,678.62 on Thursday.
The mid-cap FTSE 250 index settled lower by 0.39% at 18,638.55. Both indices outperformed the wider STOXX Europe 600 Index, which closed lower sharply by 1.3% on Thursday.
What to watch: Traders await the release of economic reports on retail sales, manufacturing PMI and services PMI from the UK today. Retail sales in the UK, which fell by 1.2% in July, are likely to grew by 0.4% in August.
The S&P Global/CIPS UK manufacturing PMI is expected to increase to 44 in September, from a reading of 43.0 in August, while services PMI is projected to improve to 49.6, from 49.5 in the previous month.
Context: Wall Street closed sharply lower on Thursday, as investors digested the US Federal Reserve’s latest policy decision.
Details: The US central bank maintained its key rates at 5.25%-5.50% during its meeting on Wednesday but indicated another rate hike of 25 basis points before the year ends.
All major sectors on the S&P 500 closed lower on Thursday, with real estate stocks recording their biggest single-day percentage decline since March.
Rate-sensitive mega-cap stocks, including Apple, Amazon.com and Alphabet, exerted significant pressure on S&P 500 and Nasdaq 100, sending these indices to their weakest settlement levels since June.
On the economic data front, initial jobless claims declined by 20,000 to 201,000 in the week ending September 16. The figure also came in better than market views of 225,000. The US current account deficit also contracted to $212.1 billion in the second quarter, from $214.5 billion gap in the earlier period.
The Dow Jones index shed 370.46 points, or 1.08%, to close at 34,070.42, while the S&P 500 fell 1.64% to settle at 4,330.00 on Thursday. The Nasdaq 100 tumbled 1.84% to close at 14,694.24.
What to watch: Investors await the release of economic reports on services PMI, manufacturing PMI and composite PMI from the US today. The S&P Global US manufacturing PMI, which was revised higher to 47.9 in August, is projected to increase to 48 in September. The services PMI is expected to decline to 50.2 in September, from 50.5 in August.
Analysts expect S&P Global composite PMI to edge lower to 50.1 in September, from a revised reading of 50.2 in August.
Other Markets: European indices closed lower on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.69%, 1.33%, 1.59% and 1.30%, respectively.
Ukraine’s President Volodymyr Zelenskyy visited Washington DC for the second time since Russia’s invasion. The news sent the safe-haven US dollar index higher this morning.
Japan’s Jibun Bank services PMI fell to 53.3 in September, compared to August’s three-month high of 54.3, which exerted pressure on the JPY/USD forex pair.
Australia’s Judo Bank composite PMI rose to 50.2 in September, from 48 a month ago. This being the strongest reading in four months sent the AUD/USD pair higher in forex trading this morning.
New Zealand’s Westpac-McDermott Miller consumer confidence index declined to 80.2 in the three months to September, from 83.1 in the prior period, exerting pressure on the NZD/USD forex pair.
Ireland’s Credit Union Consumer Sentiment Index declined to 58.8 in September, from 62.2 in the prior month, sending the EUR/USD pair lower in forex trading this morning.
Spain’s GDP growth rate, France’s services PMI, manufacturing PMI and composite PMI, Germany’s services PMI, manufacturing PMI and composite PMI, Eurozone’s services PMI, manufacturing PMI and composite PMI, Turkey’s tourist arrivals, India’s value of deposits, foreign exchange reserves and value of loans, Mexico’s inflation rate and economic activity, Canada’s retail sales and manufacturing sales, as well as US Baker Hughes crude oil rigs.
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