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What’s happening: The British pound recorded gains against the US dollar on Monday on speculations of limited tariffs by the US.
What happened: The US dollar moved lower on Monday after a report suggested that US President-elect Donald Trump would impose lower tariffs than was earlier feared.
Investors also monitored the Bank of England’s monetary policy outlook.
Why it matters: Donald Trump is scheduled to take oath as the new US President on January 20. Markets have been concerned around the impact of extensive tariffs on the trade and economic growth of several countries, including the UK, which had sent the British pound to an eight-month low against the US dollar last week.
While Trump’s aides are reviewing plans to impose tariffs on several nations, this would only be on industries that are deemed critical to national or economic security, a Washington Post report revealed on Monday. This potential shift in the trade policy provided some relief to countries like the UK, which were expecting widespread tariffs.
Trump’s tariffs were also expected to trigger higher inflation in the US, limiting the scope of interest rate cuts by the Federal Reserve, which had been supporting the US dollar.
Weakness in the US dollar after the report on limited tariffs being imposed lent support to the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell more than 0.6% to 108.26 on Monday.
Traders widely expect the Bank of England to announce interest rate cuts of around 57 basis points (bps) in 2025. The UK central bank had lowered its interest rates by 50 bps to 4.75% last year.
Data released on Monday showed that the S&P Global UK services PMI was revised lower to 51.1 in December, from a preliminary reading of 51.4. However, the figure remained higher than November’s level of 50.8. The latest reading signalled that an expansion in the services sector for the 14th consecutive month. However, the UK’s composite PMI fell to 50.4 in December, from a preliminary reading of 50.5.
The GBP/USD gained around 0.8% to 1.2521 on Monday, after surging as much as 1% earlier in the session. The EUR/GBP edged higher to 0.8302.
What to watch: Investors await the release of economic data on S&P Global Construction PMI (1330 UAE Time) from the UK today. The S&P Global UK construction PMI, which improved to 55.2 in November from 54.3 in the previous month, is expected to decline to 54.4 in December.
Context: Equity markets in the US settled mostly higher on Monday, recovering some losses recorded in the previous week.
Details: A surge in chip stocks provided a boost to the overall market on Monday, after Foxconn reported record revenues for the fourth quarter. Nvidia’s stock climbed around 3.4%, while shares of Broadcom and Micron Technology added 1.7% and 10.5%, respectively.
Market sentiment was also boosted by a Washington Post report signalling that Donald Trump’s tariffs policy would be much less harsh than was earlier expected. The report said Trump’s allies were considering imposing tariffs only on critical imports.
Data released on Monday showed the S&P Global services PMI for the US declining to 56.8 in December, from a preliminary reading of 58.5. However, the latest reading remained above November’s 56.1 and signalled the strongest expansion in the country’s services sector since March 2022.
This week would be another holiday-shortened one, as the US stock markets will be closed on Thursday due to national mourning after the death of former President Jimmy Carter.
The S&P 500 gained 0.55% to settle at 5,975.38, while the Nasdaq 100 jumped 1.09% to close at 21,559.50. The Dow Jones index bucked the trend and shed 25.57 points, or 0.05%, to settle at 42,706.56.
What to watch: Investors await the release of economic data on balance of trade (1730 UAE Time), ISM services PMI (1900 UAE Time) and JOLTs job openings (1900 UAE Time) from the US today. The trade deficit in the US, which shrank to $73.8 billion in October from $83.8 billion gap in the previous month, is expected to widen to $78 billion in November.
Analysts expect the ISM services PMI to increase to 53 in December, from 52.1 in November, while the number of job openings are projected to decline slightly to 7.70 million in November, from 7.744 million in October.
Other Markets: European indices closed higher on Monday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.31%, 1.56%, 2.24% and 0.95%, respectively.
The Russian Defence Ministry said that the capturing of Kurakhove, a town in Ukraine’s Donetsk region, had “significantly hampered the logistics and technical support” of Ukrainian troops. The news sent the RUB/USD pair slightly higher in forex trading this morning.
Philippines’ annual inflation rate accelerated to 2.9% in December, from 2.5% in the previous month. The latest reading coming in higher than market estimates of 2.6% exerted pressure on the PHP/USD forex pair.
Australia’s private house approvals fell by 1.7% to 9,028 units in November, at a rate lower than October’s 4.0% plunge, sending the AUD/USD pair slightly higher in forex trading this morning.
Canada’s S&P Global services PMI fell to 48.2 in December, from 51.2 in the previous month. Service activity slipping back into the contraction zone exerted pressure on the CAD/USD forex pair.
Germany’s annual inflation rate rose for a third straight month to 2.6% in December, from 2.2% in November. The latest reading also came in higher than market expectations of 2.4%, which sent the EUR/USD pair lower in forex trading this morning.
Brazil’s IPC-Fipe inflation (1200 UAE Time) and PPI (1600 UAE Time), Eurozone’s HCOB construction PMI (1230 UAE Time), inflation rate (1400 UAE Time), unemployment rate (1400 UAE Time), and inflation rate (1400 UAE Time), France’s HCOB construction PMI (1230 UAE Time), Germany’s HCOB construction PMI (1230 UAE Time), Italy’s HCOB construction PMI (1230 UAE Time), unemployment rate (1300 UAE Time) and inflation rate (1400 UAE Time), Singapore’s foreign exchange reserves (1300 UAE Time), India’s fiscal year GDP growth (1600 UAE Time), Canada’s balance of trade (1730 UAE Time) and Ivey PMI (1900 UAE Time), US Redbook index (1755 UAE Time) and JOLTs job quits (1900 UAE Time).
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