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What’s happening: The British pound moved higher versus the US dollar on Monday, as investors assessed the Bank of England’s monetary policy.
What happened: The sentiment remained upbeat for the sterling during Monday’s session, despite economic growth concerns in the UK.
The Bank of England has been struggling to reach a decision on interest rates following last week’s mixed economic reports.
Why it matters: Data released last week showed the annual rate of consumer price inflation (CPI) in the UK rising 4% year-over-year in December, accelerating for the first time in 10 months. Markets were expecting a decline in the annual CPI to 3.8%.
Retail sales contracted by 3.2% last month, recording the biggest decline since January 2021, while wages in the UK increased at their slowest pace in around one year.
While there are speculations of a rate cut by the Bank of England in May, markets are fully pricing in the first 25 basis points (bps) rate cut by June and a total of about 105 bps of easing in 2024.
Meanwhile, traders shifted their speculations of the US Federal Reserve announcing its first rate cut in May, compared to earlier expectations of March. Markets are pricing in a total of around 135 bps of easing this year.
The US dollar steadied on Monday, which also lent some support to the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, traded almost flat at 103.33.
The GBP/USD forex pair gained around 0.1% to 1.2711 on Monday. The sterling gained around 0.2% to 85.63 pence versus the euro, surging to its highest level since December 11.
London’s FTSE 100 rose 0.35% to close at 7,487.71, while the FTSE 250 jumped 1.08% to settle at 19,075.64 on Monday.
What to watch: Investors await the release of economic reports on manufacturing PMI, services PMI and composite PMI from the UK on Wednesday. Analysts expect the S&P Global UK manufacturing PMI to increase to 47 in January, from 46.2 in December, while services PMI is projected to decline to 53.2 in January, from 53.4 in December. Analysts expect the S&P Global UK composite PMI to increase to 52.2 in January, from 52.1 in December.
Economic data on public sector net borrowing from the UK, scheduled for release today, will also remain in focus.
Context: Equity markets in Europe closed higher on Monday, amid a surge in technology stocks.
Details: European markets started the week on a positive note on Monday, ahead of the key consumer confidence report and the European Central Bank’s monetary policy meeting.
Traders widely expect the ECB to keep interest rates unchanged at its next meeting, scheduled for Thursday.
The STOXX Europe 600 Index jumped 0.77% to close at 472.86 on Monday. While European stocks were already on an uptrend, they received a further boost from the positive opening of US stock markets, which sent the Dow Jones index and S&P 500 to record highs during the session.
Technology stocks surged around 2.1%, while banks and retail shares added approximately 1.2% each on Monday.
Germany’s DAX 40 gained 0.77% to close at 16,683.36, while France’s CAC 40 added 0.56% to settle at 7,413.25 on Monday.
What to watch: Investors await the release of economic data on consumer confidence from the Eurozone today. The Eurozone’s consumer confidence indicator had risen by 1.9 points to -15 in December, reaching the strongest level since February 2022. The indicator is expected to improve further to a reading of -14.3 in January.
Data on manufacturing PMI, services PMI and composite PMI, due to be released on Wednesday, will also remain in focus.
Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.36%, 0.22% and 0.1%, respectively.
Poland’s Prime Minister Donald Tusk pledged to continue providing support to Ukraine against its ongoing battle with Russia. The news sent the RUB/USD pair lower in forex trading this morning.
Australia’s NAB business confidence index rose to -1 in December, from a reading of -8 a month ago, lending support to the AUD/USD forex pair.
The Bank of Japan maintained its key short-term interest rate at -0.1%, which sent the JPY/USD pair slightly lower in forex trading this morning.
New Zealand’s BusinessNZ Performance of Services Index fell to 48.8 in December, from a reading of 51.1 in the prior month. However, new orders remaining in the expansion zone, which lent support to the NZD/USD forex pair.
Poland’s retail sales contracted by 2.3% year-over-year in December, versus a 0.3% decline a month ago, which sent the PLN/USD pair lower in forex trading this morning.
South Africa’s composite leading business cycle indicator, Turkey’s consumer confidence index, Canada’s new housing price index, US Redbook index, Richmond Fed manufacturing index and Richmond Fed services index, as well as Argentina’s economic activity estimator.
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