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GBP/USD slides from 5-month highs

Wednesday, January 10, 2024

Today’s headlines

What’s happening: The GBP/USD forex pair moved lower on Tuesday, as investors assessed the Bank of England’s future monetary policy.

What happened: GBP/USD forex pair came under pressure on Tuesday amid strength in the US dollar.

However, the British pound remained close to its five-month highs versus the US dollar on prospects of the Federal Reserve cutting interest rates much earlier than the Bank of England.

Why it matters: Consumer price inflation in the UK came in at 3.9% for November, the highest among the G7 nations. However, the reading was significantly below the peak level of 11.1% hit in November 2022.

Markets widely expect the BoE to begin slashing interest rates in May, while the Fed is seen cutting rates as early as in March.

Strength in the US dollar exerted pressure on the sterling on Tuesday. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained more than 0.3% to reach 102.57.

On the economic data front, UK retail sales grew by 1.9% on a like-for-like basis in December, compared to the year-ago month. The figure represented lacklustre holidays sales, as it was significantly below the 2.6% surge in the previous month.

The GBP/USD forex pair fell around 0.3% to 1.2711 on Tuesday, after surging to its strongest level since August on December 28. The pound shed more than 0.1% versus the euro to 86.03, after surging to a three-and-a-half-week high earlier in the session.

London’s FTSE 100 fell 0.13% to close at 7,683.96, with retail stocks being among the worst performers. The FTSE 250 index dipped 0.51% to settle at 19,294.02 on Tuesday.

What to watch: Investors await the release of GDP data from the UK this week, which is expected to provide some insights into the BoE’s future monetary policy. The British economy, which contracted by 0.3% in October, is expected to expand by 0.2% in November.

Data on industrial production and balance of trade, due to be released on Friday, will also remain in focus. Industrial production in the UK had declined by 0.8% in October and is projected to grow by 0.3% in November. The UK’s trade deficit is expected to narrow to £4.0 billion in November, from £4.480 billion in October.

The markets today

US stocks will be in focus today ahead of wholesale inventories data

Context: US equities closed mixed on Tuesday, with tech stocks lending some support to the markets.

Details: Tech stocks, which had been the top performers in 2023, struggled to extend gains at the start of the new year, exerting pressure on the broader market. However, the Nasdaq 100 managed to record gains on Monday amid a surge in the mega-cap tech stocks.

Shares of Nvidia climbed to a new all-time high on Tuesday, after the company announced three new chips for AI computers. Amazon’s stock added around 1.5% after the company launched a new feature for streaming videos to TV devices.

Shares of Juniper Networks jumped around 22% on Tuesday after the Wall Street Journal reported that Hewlett Packard Enterprise is nearing a deal to buy the company for around $13 billion.

On the economic data front, the US trade gap shrank to $63.2 billion in November, from $64.5 billion in the prior month. The figure was also better than market expectations of a $65 billion gap.

The Dow Jones index fell 157.85 points, or 0.42%, to close at 37,525.16 on Tuesday, after shedding as much as 309.71 points earlier in the session. The S&P 500 fell 0.15% to settle at 4,756.50. The Nasdaq 100 bucked the trend and gained 0.17% to close at 16,678.70.

What to watch: Investors await the release of economic data on wholesale inventories from the US today. Analysts expect wholesale inventories in the US to decline by 0.2% in November, compared to a 0.4% decline in the previous month.

Data on inflation rate will also remain in focus this week. The annual inflation rate in the US, which eased to 3.1% in November, is expected to rise back to 3.2% in December.

Other Markets: European indices closed lower on Tuesday, with the DAX 40, CAC 40 and STOXX Europe 600 Index down by 0.17%, 0.32% and 0.19%, respectively.

The news shaping the markets

Russia launched a series of missiles that put the whole of Ukraine under air raid alert for over three hours on Monday. The news sent the RUB/USD pair higher in forex trading this morning.


Indonesia’s retail sales grew by 2.1% year-over-year in November, easing from the four-month high of 2.4% recorded in October, and exerted pressure on the IDR/USD forex pair.


The Philippines said its trade deficit had widened to $4.69 billion in November, from $3.72 billion in the year-ago period. This being the widest gap since April sent the PHP/USD pair lower in forex trading this morning.


Japan’s average cash earnings rose by 0.2% year-over-year in November, slowing from a 1.5% increase in October, which exerted pressure on the JPY/USD forex pair.


Australia’s monthly Consumer Price Index indicator increased by 4.3% in the year to November, compared to 4.9% in the prior month, sending the AUD/USD pair higher in forex trading this morning.

What else to watch today

Saudi Arabia’s industrial production, Turkey’s industrial production, unemployment rate and labour force participation rate, France’s industrial production, Italy’s value of retail sales, India’s money supply M3, Mexico’s gross fixed investment, US MBA mortgage applications, crude oil inventories, gasoline stocks change and distillate inventories, Brazil’s car production and new vehicle sales, as well as China’s new yuan loans, money supply M2, outstanding yuan loans and total social financing.


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