What’s happening: The British pound moved lower against the US dollar on Monday, as investors assessed the Bank of England’s monetary policy.
What happened: The GBP/USD forex pair traded close to its one-month lows ahead of inflation data and wage growth reports this week.
The British pound rose versus the euro ahead of the Bank of England’s interest rate decision next month.
Why it matters: The GBP/USD forex pair was trading around 2.8% lower than its two-and-a-half year high recorded in late September with investors paring back speculations of another big interest rate cut by the US Federal Reserve.
Prospects of sticky inflation in the UK are expected to prevent the BoE from aggressively cutting interest rates, which had underpinned the sterling’s outperformance in 2024.
Traders widely expect the central bank to cut rates by 25 basis points (bps) at its policy meeting next month, followed by one more cut by yearend.
Data released on Friday showed UK’s trade deficit shrinking to £0.96 billion in August, from £4.71 billion in July. The country’s industrial production grew by 0.5% in August, compared to a 0.7% decline in the previous month.
The UK’s economy grew by 0.2% in August, following no growth in the previous two months. The figure came in-line with market estimates.
Strength in the US dollar also exerted pressure on the GBP/USD forex pair. The US dollar index, which measures the greenback’s performance versus a basket of major peers, gained around 0.4% to 103.30 on Monday.
The GBP/USD forex pair fell around 0.1% to 1.3059 on Monday, hovering close to its one-month low of 1.30110 recorded last week. However, the euro gained against the British pound by around 0.2% to 0.8354.
London’s FTSE 100 Index gained 0.47% to close at 8,292.66, while the more domestically focussed FTSE 250 Index added 0.25% to settle at 20,817.19.
What to watch: Investors await the release of economic data on unemployment rate, employment change and average earnings from the UK today. The UK’s unemployment rate, which declined to 4.1% from May to July, is expected to remain unchanged at 4.1% in August.
The number of people employed in the UK, which rose by 265,000 during the three months to July, is projected to increase by 250,000 in August. Average weekly earnings, including bonuses, which rose 4% year-over-year to £689 per week in the three months to July, are likely to increase by 3.8% in August.
Data on inflation rate, due to be released on Wednesday, will also remain in focus.
Context: Equity markets in the US settled higher on Monday, with the S&P 500 hitting record highs during the session.
Details: Big banks kickstarted their earnings season on a positive note, with JPMorgan Chase and Wells Fargo reporting better-than-expected quarterly earnings on Friday. The S&P 500 settled above the key 5,800 level for the first time on Friday, while the Dow Jones index climbed to an all-time high as well.
Technology stocks continued their strong run and were the among the top performing sectors on the S&P500. However, energy stocks fell around 0.1% on Monday.
The Dow Jones index jumped 201.36 points, or 0.47%, to close at 43,065.22 on Monday. The S&P 500 gained 0.77% to 5,859.85, while the Nasdaq 100 added 0.82% to settle at 20,439.04.
What to watch: Investors await the release of economic data on NY Empire State Manufacturing index and consumer inflation expectations from the US today. The NY Empire State Manufacturing Index, which unexpectedly surged to 11.5 in September to record its strongest reading since April 2022, is expected to decline to 2.3 in October. US consumer inflation expectations for the year ahead, which were unchanged at 3% in August, are projected to ease to 2.9% in September.
Other major companies, including Bank of America, Goldman Sachs and Johnson & Johnson, will release their earnings reports today, while Morgan Stanley and Netflix are scheduled to announce their earnings later this week.
Other Markets: European indices closed higher on Monday, with the DAX 40, CAC 40 and STOXX Europe 600 Index up by 0.69%, 0.32% and 0.53%, respectively.
Ukraine’s President Volodymyr Zelenskyy said North Korea is helping Russia in its war by sending weapons and soldiers. The news sent the RUB/USD pair higher in forex trading this morning.
South Korea’s export prices rose by 1.2% year-over-year in September, easing from the 5.5% surge in the previous month, which exerted slight pressure on the KRW/USD forex pair.
Mexico’s consumer confidence indicator slipped to 47.1 in September, from 47.6 in the previous month, which sent the MXN/USD pair lower in forex trading this morning.
India’s annual inflation rate accelerated to 5.49% in September, from 3.65% in August. The latest reading also came in above market expectations of 5%, which exerted pressure on the INR/USD forex pair.
Poland posted a current account deficit of €2.83 billion in August, versus a year-ago surplus of €778 million, which sent the PLN/USD pair lower in forex trading this morning.
Germany’s wholesale prices, ZEW economic sentiment index and ZEW current conditions index, UK’s claimant count change and HMRC payrolls change, France’s inflation rate, Eurozone’s industrial production, ZEW indicator of economic sentiment and industrial production, Canada’s inflation rate and wholesale sales, US Redbook index and government budget, Saudi Arabia’s inflation rate, Turkey’s central government budget balance, South Africa’s SACCI business confidence index, as well as India’s balance of trade.