Pound sterling exchange rates had a pretty torrid time last week following weak data releases, with the final blow coming from weaker-than-expected retail sales numbers on Friday alongside by-election results. I am not sure UK politics is playing a large part in things at the moment so I will not dwell on that for now- but the retail sales figures told a story last week, especially after the inflaton reading coming in higher than expected as well. What the data is effectively showing is that inflation in the UK is not currently demand-driven, so we are seeing higher prices alongside weaker demand, this is called stagflation.This puts the BoE in a difficult position as it is not as simple as just raising interest rates to bring inflation down, other factors will now have to be explored. For the November BoE decision the minimum that is expected is for rates to be kept on hold, but we could also see a small 25bps hike.
There are a few important data releases that will undoubtedly move markets before the end of the month, the first is UK employment data on Tuesday where we are expecting slightly more negative numbers alongside a higher claimant count, this will back up the data seen last week with higher inflation and slower retail sales- if people do not have jobs, they can’t spend money. Later on Tuesday morning we have UK flash manufacturing services and PMI for October- both expected slightly higher but still below the key 50 level. We have the same flash PMI in the U.S where the same result is expected, higher but still below 50.
On Thursday the most important events are the BoC decision, where rates are expected to stay on hold- even though we are seeing higher oil prices globally. We also have a speech from Fed Chair Powell, who I am sure will be very careful with his words and state that the Fed will still remain neutral and ready to raise rates if and when needed, however, the market has noticed a shift in language and not expecting any more hikes soon.
On Thursday, the highlight is the ECB rate decision, currently, the expectation is that rates will remain on hold at 4.5%- however, it will be interesting to hear Lagarde’s press conference following the decision and any forward guidance that will be potentially given. Later on Thursday we have U.S durable goods orders which are expected to come out more positive than previous.