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What’s happening: The British pound recorded gains against the US dollar following the Bank of England’s interest rate decision.
What happened: The UK central bank kept its benchmark interest rates unchanged at its latest meeting, amid concerns around persistent inflation and elevated geopolitical risks.
Weakness in the US dollar also lent further support to the GBP/USD forex pair this morning.
Why it matters: On Thursday, the Bank of England announced its decision to maintain interest rates at 4.25%, with members voting 6-3. Three policymakers had voted in favour of a rate cut of 0.25 percentage points.
The BoE said that consumer price inflation is likely to remain at the current levels for the rest of the year before falling back toward the central bank’s target in 2026. Policymakers warned of “two-sided risks” to inflation – higher energy prices following the Israel-Iran conflict and disruptions in trade due to the proposed US tariffs.
Markets remained optimistic with the UK being the only nation so far to have reached a trade agreement with the US. UK’s Prime Minister Keir Starmer and US President Donald Trump finalised the agreement at the G7 summit.
Data released earlier in the week showed UK’s annual inflation rate easing slightly to 3.4% in May, from 3.5% in April, in-line with market expectations.
Data released this morning showed the GfK Consumer Confidence Index for the UK rose by 2 points to a reading of -18 in June, gaining for the second consecutive month.
The US Federal Reserve also kept interest rates unchanged at its latest meeting, with Chairman Jerome Powell warning of potential inflationary pressures due to the Trump administration’s new tariff policy.
Weakness in the US dollar provided a boost to the GBP/USD pair this morning. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.3% to 98.65.
The GBP/USD forex pair rose more than 0.1% to reach 1.3485 this morning.
What to watch: Investors await the release of economic reports on S&P Global Manufacturing PMI (1230 UAE Time), S&P Global Services PMI (1230 UAE Time) and S&P Global Composite PMI (1230 UAE Time) from the UK on Monday. The S&P Global UK manufacturing PMI, which was revised upward to 46.4 in May versus a preliminary reading of 45.1, is expected to increase to 46.6 in June, while the services PMI is projected to edge lower to 50.5 in June from 50.9 in the previous month.
Analysts expect the S&P Global UK composite PMI to improve slightly to 50.4 in June, from 50.3 in May.
Context: Equity markets in Japan edged lower this morning as investors digested the latest inflation data.
Details: Japan’s annual inflation rate slipped to 3.5% in May, from.6% in the previous two months. With this, inflation eased to its lowest reading since November 2024.
Despite this, the core consumer price index, which excludes fresh food but includes energy, rose 3.7% year-over-year in May. This marked the third straight month of an increase, which took the index to its highest level since January 2023. The latest reading also came in higher than market estimates of 3.6%, reigniting speculations of the Bank of Japan further tightening its monetary policy to address inflationary pressures.
Earlier this week, the Bank of Japan had kept its benchmark interest rate unchanged at 0.5%.
Meanwhile, geopolitical concerns continued to impact the overall market sentiment, with US President Donald Trump warning to attack Iran, even as Europe prepares to find a diplomatic solution.
Japan’s Nikkei 225 slipped 0.11% to 38,445.57 this morning.
What to watch: Investors await the release of Japan’s Jibun Bank manufacturing PMI (0430 UAE Time), Jibun Bank services PMI (0430 UAE Time) and Jibun Bank composite PMI (0430 UAE Time) on Monday. The au Jibun Bank Japan manufacturing PMI, which rose to 49.4 in May from 48.7 in the previous month, is expected to expand to 50.1 in June.
Analysts expect the services PMI to increase to 51.5 in June, from 51.0 in May, while the composite PMI is projected to improve to 50.7 in June from 50.2 in the previous month.
Other Markets: European trading indices closed lower on Thursday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.58%, 1.12%, 1.34% and 0.83%, respectively.
Iran’s foreign minister is scheduled to meet his counterparts from Germany, France and the UK in Geneva today. Despite this, WTI crude prices continued to rise this morning.
Russian President Vladimir Putin expressed concerns around Ukrainian President Volodymyr Zelensky’s legitimacy to sign a treaty, while signalling that he was open to meet for peace negotiations. The news sent the RUB/GBP pair slightly higher in forex trading this morning.
South Korea’s producer inflation eased to 0.3% year-over-year in May, from 0.8% in the previous month. The latest reading being the lowest since July 2023 lent support to the KRW/USD forex pair.
Argentina’s trade surplus shrank to $608 million in May, from $2.64 billion in the year-ago month. The latest reading fell short of market estimates of $859 million and sent the ARS/USD pair lower in forex trading this morning.
Canada’s CFIB Business Barometer long-term index rose by 7.3 points to a reading of 47.3 in June. The region’s small business sentiment surging to the strongest level since February lent support to the CAD/USD forex pair.
European Central Bank’s economic bulletin (1200 UAE Time) and Eurozone’s consumer confidence (1800 UAE Time), Italy’s construction output (1200 UAE Time), India’s monetary policy meeting minutes (1530 UAE Time), bank loan growth (1530 UAE Time), deposit growth (1530 UAE Time), foreign exchange reserves (1530 UAE Time) and infrastructure output (1530 UAE Time), Canada’s new housing price index (1630 UAE Time), retail sales (1630 UAE Time), PPI (1630 UAE Time) and raw materials prices (1630 UAE Time), as well as US Philadelphia Fed manufacturing index (1630 UAE Time), Philly Fed business conditions (1630 UAE Time), Philly Fed employment (1630 UAE Time), Philly Fed new orders (1630 UAE Time), CB leading index (1800 UAE Time), Baker Hughes oil rig count (2100 UAE Time) and Baker Hughes total rigs count (2100 UAE Time).
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