Pound Slides as Global Stocks Hold Steady amid British Economic Data

Global stocks and the dollar held steady on Tuesday, one day ahead of crucial U.S. inflation data that could impact Federal Reserve rate decisions. Traders remained cautious as they awaited the U.S. numbers and Thursday’s European Central Bank meeting. Britain’s unemployment rate rose, indicating a weaker economy and the possibility that the Bank of England’s expected rate rise next week may be its last. This news led to a rise in Britain’s FTSE index and expectations of a softer pound, making British stocks more attractive to overseas investors.
 
The labour market in Britain showed signs of cooling in the three months through July, suggesting a weaker economy and slowing inflation. According to Chris Scicluna, head of research at Daiwa Capital Markets, this data suggests “the likelihood of just one more and then done for the Bank of England.” He also anticipates “more of a bull steepening in the gilt market while we have had bear flattening elsewhere where higher oil prices have dominated the narrative.” Bond yields moved inversely to prices, with shorter dated rates falling faster than longer dated rates.
 
The U.S. dollar resumed its rise after a blip on Monday, fueled by moves in Asian currencies. Both the yen and the yuan remain near their weakest levels of the year. China’s property developer Country Garden won approval from creditors to extend bond repayments, which lifted Hong Kong-listed Chinese developers. However, MSCI’s index of Asia Pacific shares outside Japan was down slightly.
 
Market focus remains on the upcoming U.S. Consumer Price Index (CPI) figures and the European Central Bank’s meeting later in the week. The U.S. figures are expected to show a fall in annualized core inflation to 4.3% in August, with the headline number ticking up to 3.6%. A lower-than-expected print may slow down the rise of the U.S. dollar, while a higher print could potentially unsettle market expectations and fuel dollar strength. 
 
Investor risk appetite will also be tested this week by the listing of British chip designer Arm Holdings in New York. Additionally, the European Central Bank is expected to keep rates steady, but a 25 basis point hike remains a possibility.
 
In commodity markets, Brent crude futures rose slightly, while gold remained at $1,920 an ounce.