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What’s happening: The GBP/USD forex pair edged lower on Tuesday, after hitting a one-month high in the prior session.
What happened: The British pound was supported by optimism surrounding the Labour Party’s victory in the UK general election.
The sterling moved lower against the euro and the US dollar on Tuesday, as traders assessed the new political landscape.
Why it matters: Last week, UK’s Labour Party came to power with a historic, landslide victory that saw them winning 412 out of 650 seats in the House of Commons. The new government, which ended the 14-year tenure of the Conservatives, is widely expected to announce reforms, especially for the NHS, immigration and housing.
The election results triggered speculations of the Bank of England beginning to cut interest rates as soon as at the upcoming meeting.
Some weakness in the greenback, following signs of a slowdown in the US economy, had lent support to the sterling last week. However, the US dollar strengthened on Tuesday, which exerted pressure on the GBP/USD. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.1% to 105.13 on Tuesday.
The GBP/USD forex pair shed more than 0.1% to 1.2787, after hitting a one-month high of 1.2846 on Monday.
The EUR/GBP forex pair settled higher at 0.8458 on Tuesday. The euro has remained volatile in recent weeks amid uncertainties surrounding the elections in France, which resulted in a hung parliament.
London’s FTSE 100 index declined 0.66% to settle at 8,139.81 on Tuesday, extending losses from the two previous sessions.
What to watch: Data on GDP growth, industrial production and balance of trade from the UK will be released on Thursday. The British economy, which expanded by 0.6% year-over-year in April, is expected to grow by 1.2% in May.
Analysts expect industrial production to increase 0.6% year-over-year in May, following a 0.4% decline in April. The UK’s trade deficit, which widened to around a two-year high of £6.75 billion in April, is projected to narrow to £4.3 billion in May.
Investors also await the release of US inflation reports this week, which could provide further direction to the GBP/USD forex pair.
Context: The S&P 500 surged to a new record high on Tuesday, following Federal Reserve Chairman Jerome Powell’s testimony before the Senate.
Details: Powell warned about the risks of keeping interest rates elevated for too long. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment,” he said.
Although the Fed Chairman added that more evidence of inflation moving “sustainably” toward 2% was needed, the speech triggered speculations of the US central bank cutting its benchmark interest rates twice this year.
On the economic data front, the US NFIB Small Business Optimism Index surged to 91.5 in June, from 90.5 a month ago.
Tech stocks extended gains on Tuesday. Shares of Tesla, Nvidia, and Intel continued to rally.
Financial stocks also recorded gains ahead of the start of the bank reporting season this week. Shares of Goldman Sachs, JPMorgan Chase and Citigroup led the uptrend.
The S&P 500 gained 0.07% to settle at 5,576.98 on Tuesday, while the Nasdaq 100 rose 0.07% to close at 20,453.02. The Dow Jones index bucked the trend, shedding 52.82 points, or 0.13%, to close at 39,291.97.
What to watch: Investors await the release of inflation data from the US this week. The annual inflation rate in the US, which eased to 3.3% in May, is expected to fall further to 3.1% in June. Factory gate prices in the US, which fell by 0.2% in May, are projected to increase 0.1% in June.
Data on wholesale inventories, due to be released today, will also remain in focus. US wholesale inventories are expected to increase 0.6% to $901.6 billion in May, after a 0.2% rise in the prior month.
Other Markets: European indices closed lower on Tuesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.66%, 1.28%, 1.56% and 0.90%, respectively.
US officials said Russia is unlikely to make significant territorial gains in Ukraine during the upcoming months. The news sent the RUB/USD pair lower in forex trading this morning.
China’s producer prices eased 0.8% year-over-year in June, compared to a 1.4% decline in May. This being the 21st consecutive month of decline in factory gate prices exerted pressure on the CNY/USD forex pair.
The Reserve Bank of New Zealand maintained its official cash rate at 5.5% during its latest policy meeting, sending the NZD/USD pair lower in forex trading this morning.
Japan’s producer prices rose by 2.9% year-over-year in June, after rising 2.6% in the earlier month, which exerted pressure on the JPY/USD forex pair.
South Korea’s unemployment rate came in unchanged for the fourth straight month at 2.8% in June, sending the KRW/USD pair lower in forex trading this morning.
Saudi Arabia’s industrial production, Turkey’s industrial production and jobless rate, Italy’s industrial production, US MBA mortgage applications, crude oil inventories, gasoline stocks change and distillate stocks, India’s money supply M3, Brazil’s inflation rate, Russia’s inflation rate, France’s current account, as well as China’s vehicle sales.
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