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GBP/USD falls to 7-week low despite strong data

 

Tuesday, February 06, 2024

Today’s headlines

What’s happening: The GBP/USD forex pair fell on Monday amid strength in the US dollar.

What happened: The British pound declined to its weakest level since mid-December as remarks from the US Federal Reserve Chairman Jerome Powell provided a boost to the greenback.

The sterling came under pressure on Monday despite some stronger-than-expected economic reports from the UK.

Why it matters: During an interview released on Sunday, US Fed chief Jerome Powell said the central bank is unlikely to cut interest rates in March, lending support to the US dollar. Traders also responded to the higher-than-expected jobs growth data released on Friday to send the US dollar higher. The NFP (nonfarm payrolls) report not only showed significantly better-than-expected job adds in January, but also solid wage growth.

Data released on Monday showed an acceleration in the US services activity in January, lending further support to the US dollar. The ISM services PMI topped market expectations, coming in at 53.4 in January, while the survey’s price gauge surged to an 11-month high of 64.

Strength in the greenback exerted pressure on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.5% to 104.45 on Monday, after touching the highest level since November 17.

The pound remained under pressure, despite some strong domestic economic data. The S&P Global UK services PMI climbed to 54.3 in January, from 53.4 a month ago. The figure was also higher than the preliminary reading of 53.8, signalling the sharpest growth rate in the services sector in eight months.

The UK’s unemployment rate also eased to 3.9% during the three months to November. New car registrations in the UK surged by 8.2% year-over-year to 142,876 units in January.

The Bank of England kept interest rates unchanged at 5.25% during last week’s meeting, but signalled prospects of rate cuts this year. The central bank’s policymakers projected the CPI rate to ease to the 2% level in the second quarter of this year, before rising again in the third and fourth quarter.

The GBP/USD forex pair fell around 0.8% to 1.2535 on Monday, after declining to its lowest level since December 13. The EUR/GBP pair added more than 0.3% to 0.8570. London’s FTSE 100 slid 0.04% to close at 104.43.

What to watch: Investors await the release of data on construction PMI from the UK today. The S&P Global UK construction PMI, which rose to 46.8 in December, is expected to increase again to a reading of 47.3 in January.

The markets today

McDonald’s shares will be in focus today after the company released its fourth-quarter results

Context: Shares of McDonald’s fell on Monday, after the company reported mixed quarterly results.

Details: The fast-food giant reported its first quarterly revenue miss in around four years, with weak sales growth in its IDL (international developmental licensed) markets.

Comparable sales in that segment grew just 0.7% in the latest quarter, compared to market expectations of 5.5% growth. The company said its sales in the Middle East remained weak due to geopolitical tensions. McDonald’s Indian franchisee saw its first sales contraction in three years, while consumer spending in China, the company’s second-biggest market, also remained weak.

However, the company’s US same-store sales grew by 4.3% in the fourth quarter, while global same store sales rose 3.4%, supported by hikes in menu prices, marketing campaigns, and growth in digital and delivery sales.

McDonald’s reported fourth quarter adjusted earnings of $2.95 per share, higher than the consensus estimates of $2.82 per share. Sales grew 8% year-over-year to $6.41 billion, slightly short of the Wall Street expectations of $6.45 billion.

How shares responded: McDonald’s shares fell 3.7% to close at $285.97 on Monday, following the release of quarterly results. The stock has lost 2% over the past month.

What to watch: Investors will continue monitoring the company’s sales in international markets, especially China, India, and the Middle East.

Other Markets: European indices closed mostly lower on Monday, with the DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.08%, 0.03% and 0.05%, respectively.

The news shaping the markets

The Kremlin warned Western nations of any attempt to use frozen Russian assets as collateral to help raise funds for Ukraine. The news sent the RUB/USD forex pair slightly higher this morning.


The Philippines said its annual inflation rate declined to 2.8% in January, from 3.9% in December. This being the lowest reading since October 2020 lent support to the PHP/USD forex pair.


Japan’s average cash earnings rose by 1% year-over-year in December, accelerating from a 0.2% increase in the prior month, which sent the JPY/USD pair higher in forex trading this morning.


Ireland’s AIB services PMI fell to 50.5 in January, from 53.2 a month ago. However, the services sector remaining in the expansion zone lent support to the EUR/USD forex pair.


Colombia’s producer prices fell by 5.52% year-over-year in January. This being the ninth consecutive month of producer price deflation sent the COP/USD pair lower in forex trading this morning.

What else to watch today

Germany’s factory orders, new passenger car registrations and construction PMI, Eurozone’s construction PMI, retail sales and inflation expectations over the next 12 months, France’s construction PMI, Italy’s construction PMI, consumer confidence index and manufacturing confidence index, Russia’s total vehicle sales, Canada’s value of building permits and Ivey Purchasing Managers Index, US RealClearMarkets/TIPP economic optimism index, total household debt and API crude oil stock change, Spain’s consumer confidence indicator, Central Bank of Brazil’s focus market readout, as well as Argentina’s industrial production.


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