It is no secret that Sterling exchange rates have been under pressure over the last month, with economic sentiment weighing heavy on the Pound alongside the BoE signaling that they are at the end of their rate hike cycle- Monday is a relatively quiet day on the data front, however, there were a couple of news releases of importance, the first was a report from Morgan Stanley stating that the UK will fall into a technical recession in 2024, and that they predict the BoE will begin cutting rates as early as Q2, with rates ending the year at 4.25%- this is pretty bearish for Sterling and I don’t think many people disagree with this notion. The second was Rishi Sunak’s cabinet reshuffle, with the main headlines being Suella Braverman being sacked and ex-PM David Cameron being brought back into Government- politics will not affect exchange rates much currently unless we see a leadership challenge of some sort or a snap election. The latter is quite unlikely at this point.
This week we have a few data releases of importance, especially for the UK- the first being UK earnings and employment on Tuesday, with unemployment expected higher, and average earnings expected lower- this should be priced in as it has been widely expected that the UK jobs market would take a hit this year due to higher inflation and higher borrowing costs- this could be a slight bump in the road for Sterling however if we get any positive surprises it could provide a short-lived jump in rates. Later on Tuesday we have GDP data out of the Eurozone which is expected to show a contraction, followed by ZEW economic sentiment out of Germany. In the afternoon we have U.S CPI data which is expected to come down to 3.3% which will be very positive for the U.S economy, however, this may not strengthen the Dollar as it will mean there is not much of a chance the Fed will hike again in this cycle.
On Wednesday, the most anticipated data release will be UK CPI, which is expected to come down to 4.8%- with energy prices lower and generally lack of demand we should see a better reading this month, if we see it better than expected then we may get a Sterling bounce but I do not see any GBP moves being sustained for long as it just reinstates the BoE’s stance on no longer needing any more hikes, which is bearish for the Pound, even though good for the economy.
The last data release of importance this week is retail sales on Friday for the UK- Last month’s numbers were quite weak, so I am expecting to see a little uplift in numbers this month, however, I do not predict anything too crazy so again I am not expecting moves on the Pound to be explosive following this release.