Sterling exchange rates have stayed resilient over the last week with an impressive close on Friday with GBPEUR above 1.17 and GBPUSD above 1.26, following a pretty choppy week. This week we have a lot of data out of the UK which we expect to move the markets, considering the Bank of England’s stance of wanting to keep an eye on data before making any next steps in regards to rate cuts.
To begin with, on Tuesday we have UK employment data, where we are expecting to see a rise in the unemployment number to 4%, alongside a fall in average earnings- I expect these numbers to come out as negative as expected and will set the stage for some Sterling weakness to begin the week, showing that higher borrowing costs are clearly having a negative impact on the UK economy. Later on Tuesday we have U.S inflation data where we are expecting a fall to 3%, which will undoubtedly begin to create pressure for the Fed to look at cutting rates sooner rather than later.
On Wednesday we have UK inflation data and the expectation is currently that we will see a rise to 4.2%, which I agree with, I believe UK inflation will release between 4.1-4.2%, which will show that demand is still high in the UK, and will show that the BoE does not need to look at cutting rates urgently, this could also put some strength into the Pound.
On Thursday we have UK GDP numbers where we are again expecting a contraction in the UK economy at 0.1%, The UK is still very close to recession territory and I expect these figures to show that we are either officially in recession territory or very close to this- this generally would not bode well for Sterling exchange rates. GDP data will also come out alongside trade balance, industrial and manufacturing production data- if we see a positive number here it could be enough to counter balance the GDP figures.
Lastly, we have UK retail sales on Friday, the last release was a big disappointment which weakened the Pound, generally speaking, for this release, any downside surprises will weaken the Pound and any upside surprises will keep the Pound supported