Sterling has been under a lot of pressure over the last month, with the latest release being UK GDP last week which showed that the UK economy shrank a lot more than previously expected in December. The media has taken the underlying number as a positive which essentially means we have avoided a recession (For now)- but the reality is that the UK economy is not in a fantastic place and that is very much reflected in Sterling exchange rates right now.
Looking at this week’s releases- the first important data will be UK unemployment on Tuesday, which is expected to stay at 3.7%, and average earnings to come in slightly higher than previously- it is worth keeping in mind these releases are for December/January and any potential layoffs will filter their way into the numbers in March/April- however a positive release may give Sterling a short term boost on Tuesday morning. Later on Tuesday the U.S will release it’s CPI data which is expected to come down to 5.5%, which is again a positive for the Fed, the big issue is how the CPI numbers are now weighted, as the data has become skewed to an extent- I have found a good tool to track “real” inflation in both the UK & U.S which you can find here- which will give you a reading which you will find makes more sense than the ones released on the economic calendar. https://app.truflation.com/ With inflation on it’s way down in the U.S, it is unclear whether the Fed will continue raising rates or it will decide to hold them before acting again, March will be the teller for this.
On Wednesday we have CPI out for the UK, which is also expected lower at 6.2%, the issue with this reading is that while it is not winter, energy and gas prices will be cheaper than what we will have come Autumn, and the BoE knows this, so we may not see any over reactions from a Central Bank perspective as they know inflation will creep back up towards Q3/Q4.
We finish our week with UK retail sales which are expected to improve for January- but still remain in the negative territory- which clearly shows the UK public doesn’t have as much disposable income as they did in 2022, All in all this will be a pretty volatile week for Sterling.