What’s happening: The British pound recorded gains against the US dollar on Tuesday, following the release of wage growth data.
What happened: UK wage growth accelerated during the three months to October, which increased speculations of the Bank of England being less aggressive in cutting interest rates next year.
Some strength in the US dollar limited the overall gains for the GBP/USD forex pair.
Why it matters: The Office for National Statistics said average weekly earnings, excluding bonuses, grew by 5.2% year-over-year to £656 per week in the three months to October. This came in higher than market estimates of 5.0%.
The number of people employed rose by 173,000, compared to a gain of 253,000 in the prior period. The latest reading also came in much higher than market estimates of a 12,000 decline. The UK’s unemployment rate came in unchanged at 4.3% in the August to October period, in-line with market expectations.
Strength in the labour market removes the urgency for the Bank of England to lower its benchmark interest rate. However, the latest data release also showed that the UK economy had contracted for the second month in a row in October.
Traders also expect the BoE to lower rates by about 70 basis points (bps) in 2025. Meanwhile, markets expect the US Federal Reserve to lower rates by 70bps and the European Central Bank by 120bps next year.
Strength in the US dollar limited the overall gains for the GBP/USD. The US dollar index, which measures the greenback’s performance versus a basket of major peers, rose around 0.1% to 106.96 on Tuesday.
The GBP/USD rose around 0.2% to 1.2712 on Tuesday, after hitting a low of 1.26685 earlier in the session. The EUR/GBP forex pair fell around 0.4% to 0.8256.
London’s FTSE 100 fell 0.81% to close at 8,195.20 on Tuesday.
What to watch: Investors await the Bank of England’s interest rate decision, scheduled to be announced on Thursday. Markets widely expect the BoE to keep its benchmark interest rate unchanged at 4.75%.
Context: US stocks closed lower on Tuesday, with the Dow Jones index shedding more than 250 points during the session.
Details: After settling above 45,000 earlier this month, the Dow Jones index recorded 9 sessions of losses, its longest losing streak since the late 1970s.
With the Federal Reserve widely expected to cut interest rates at its December meeting, investors have been rotating funds out of old blue-chip stocks to increase their holdings of tech and small cap stocks.
Data released on Tuesday showed US retail sales grew by 0.7% in November, topping market estimates of 0.5%. However, industrial production slipped 0.1% in November, compared to market projections of a 0.2% gain.
The Dow Jones index fell 267.58 points, or 0.61%, to close at 43,449.90 on Tuesday. The S&P 500 declined by 0.39% to 6,050.61, while the Nasdaq 100 shed 0.43% to settle at 22,001.08.
What to watch: The US central bank is scheduled to announce its monetary policy decision today (2300 UAE Time). Markets widely expect the Fed to cut its benchmark interest rates by 25bps.
Investors also await the release of economic data on current account (1730 UAE Time) and housing starts (1730 UAE Time) from the US today. The current account deficit, which came in at $266.8 billion in the second quarter, is expected to widen to $278 billion gap in the third quarter. Housing starts in the US, which declined by 3.1% to an annualised rate of 1.311 million in October, are projected to increase by 2.3% in November.
Other Markets: European indices closed mixed on Tuesday, with the DAX 40 and STOXX Europe 600 Index down by 0.33% and 0.42%, respectively, and the CAC 40 up by 0.12%.
Ukraine has taken credit for killing Lieutenant General Igor Kirillov, chief of Russia’s nuclear protection forces in a bombing in Moscow. The news sent the RUB/USD pair slightly lower in forex trading this morning.
Australia’s Westpac-Melbourne Institute Leading Economic Index rose 0.1% in November, easing from a 0.2% gain in the previous month, which exerted slight pressure on the AUD/USD forex pair.
New Zealand’s Westpac McDermott Miller Consumer Confidence Index rose to 97.5 in the fourth quarter, from 90.8 in the previous period. However, the NZD/USD pair fell slightly in forex trading this morning.
US crude oil inventories declined by 4.7 million barrels in the week ending December 13, compared to a gain of 0.499 million barrels in the previous week, lending support to WTI crude oil prices.
Japan’s trade deficit narrowed to ¥117.62 billion in November, from ¥813.87 billion in the year-ago period. The latest reading being the smallest since July 2023 lent support to the JPY/USD forex pair.
Eurozone’s inflation rate (1400 UAE Time) and construction output (1400 UAE Time), UK’s CBI industrial trends orders (1500 UAE Time), Mexico’s aggregate demand (1600 UAE Time) and private spending (1600 UAE Time), US MBA mortgage applications (1600 UAE Time), US building permits (1730 UAE Time), EIA crude oil stocks change (1930 UAE Time), EIA gasoline stocks change (1930 UAE Time), EIA distillate stocks change (1930 UAE Time), Russia’s PPI (2000 UAE Time), as well as Argentina’s balance of trade (2300 UAE Time) and unemployment rate (2300 UAE Time).