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What’s happening: The British pound moved higher against the US dollar on Monday, after declining to a 5-week low last week.
What happened: The sterling started Monday’s session in the red, as investors responded to last week’s rate hike by the Bank of England.
However, the GBP/USD forex pair found strong support near the 1.2700 mark, and moved higher later in the session.
Why it matters: The GBP/USD forex pair started the week on a cautious note, trading close to the 5-week low of 1.26200 after the Bank of England raised interest rates.
The BoE hiked rates by 25 bps to 5.25% last Thursday, compared to an increase of 50 bps in June. Central bank officials said inflation could remain elevated for some time, calling for more interest rate hikes.
Markets widely expect policymakers to raise hikes by 25 bps at least twice more this year, while pricing in the end of the US Federal Reserve’s hiking cycle.
On the economic data front, the UK’s Halifax house price index declined by 2.4% year-over-year in July, following a 2.6% downturn in the previous month. This marked the third consecutive month of y/y declines in house prices.
Strength in the US dollar limited the sterling’s overall gains on Monday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained slightly to reach 102.05.
The GBP/USD forex pair rose around 0.3% to 1.2783 on Monday, after falling to as low as 1.2711 earlier in the session. The euro fell against the British pound by around 0.4% to 86.09 pence.
The FTSE 100 lost 0.13% to close at 7,554.49 on Monday, extending losses from the previous session, as markets continue to monitor recent economic reports and earnings results.
What to watch: Traders are awaiting GDP data from the UK, due to be released on Friday. The country’s economy had grown by 0.2% in the first quarter and is expected to expand by 0.1% in the second quarter.
Markets will also watch US inflation data, scheduled for release on Thursday. Analysts expect the annual inflation rate to accelerate to 3.1% in July, from 3% in the previous month.
Context: Crude oil settled lower on Monday after recording gains for six straight weeks.
Details: Investors booked some profits on Monday after oil prices had risen for six weeks in a row.
The announcement by the world’s top exporter, Saudi Arabia, of a voluntary production cut of 1 million barrels per day last month had been supporting oil prices. Saudi Aramco also increased the official selling price for most grades for September delivery to Asia.
Russia also announced plans to reduce oil exports by 300,000 barrels per day in September, lending support to oil prices.
The US summer driving season approaching an end, which typically results in a decline in demand, exerted pressure on oil prices on Monday.
WTI crude oil for September delivery declined 88 cents to close at $81.94 per barrel on Monday, while Brent crude for October delivery slipped 90 cents to $85.34 per barrel.
In other energy trading, wholesale gasoline for September delivery added 2 cents $2.80 a gallon, while September heating oil declined 4 cents to $3.02 a gallon and September natural gas added 15 cents to $2.73 per 1,000 cubic feet.
What are expectations: Traders await the API’s data on crude oil stockpiles today. US crude oil inventories had declined by 15.4 million barrels in the week ended July 28, representing the biggest weekly drawdown since 2012.
Markets will also watch economic data from China this week, hoping for indications of a recovery in energy demand from the world’s largest importer.
Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.16%, 0.90% and 0.87%, respectively.
In their attempt to regain territory lost to Ukraine, Russian troops advanced 3 kms (2 miles) along the Kupiansk front over the last three days. The news sent the safe-haven US dollar index higher this morning.
Australia’s building permits fell by 7.7% to 13,808 units in June, compared to 20.5% growth in the previous month, exerting pressure on the AUD/USD forex pair.
The Philippines said its manufacturing production had risen by 3.9% year-over-year in June. The figure representing a slowdown from May’s 9.9% growth sent the PHP/USD pair lower in forex trading this morning.
Japan’s household spending fell by 4.2% year-over-year in June, more than market expectations of a 4.1% decline and exerted pressure on the JPY/USD forex pair.
South Korea posted a current account surplus of $5.87 billion in June, narrower than the $6.06 billion surplus recorded in the year-ago month. The news sent the KRW/USD pair lower in forex trading this morning.
Germany’s inflation rate, France’s balance of trade and current account, Central Bank Of Brazil Copom meeting minutes, Canada balance of trade, exports and imports, as well as US NFIB small business optimism index, balance of trade, exports, imports, total consumer debt, Redbook index, IBD/TIPP economic optimism index and wholesale inventories.
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