By Simon Eastman
Sterling ended last week’s trading with a positive run to levels not seen in weeks, against the euro and US dollar giving some great end of week buying opportunities, gaining around one percent against both as the weeks trade closed.
As the UK gets over the hangover from crashing out of the World Cup at the weekend, with sentiment at a low, the positivity behind the pound could well change this week as we enter a data heavy week, full of major UK economic releases including inflation, retail sales, GDP and several central bank interest rate meetings.
There seems to be a deepening divide amongst Bank members, over what is the right way forward to combat inflation, whilst being mindful of the increasing cost of living crisis and looming recession with rising interest rates adding a great deal to the squeeze on household finances. Markets are speculating the divide may see a four way split when voting is published on Thursday, where it’s expected we will have a 50 basis point rise, bringing interest rates to 3.5 percent, the highest they’ve been in 14 years. Inflation sits at a 41 year high at 11.1 percent, over 5 times the level they’re tasked to keep it at, so the Bank must look to combat this but with pressures of increasing debt as we try to avoid a deep recession, interest rate rises are only adding to the pressure. This is why a split vote is expected, with speculation some members will vote for a 25 basis point hike instead and some for no change at all.
The bank are forecasting a deep recession with growth low and unemployment high, and experts expect we will see interest rates rise to around 4-4.5 percent. All this while central banks around the world seem to be keeping inflation under some sort of control and forecasting growth levels to return much sooner than the UK does. All this is likely to cause the UK and more importantly the pound to struggle as we enter 2023. Those of you with sterling in hand and a currency requirement in the coming weeks may be prudent to look at securing sooner rather than later, whilst rates sit at a high and ahead of the festive break where trading is limited and volatility heightened.
We highlight the main economic releases for the week below:
Monday
UK GDP, industrial and manufacturing production and trade balance. Bank of Canada governor Macklem speaks at 20.25.
Tuesday
UK Financial stability report, average earnings, unemployment count and claimant count. German consumer prices and ZEW economic sentiment survey. US inflation and Australia’s RBA governor Lowe speaks at 22.30.
Wednesday
UK inflation, EU industrial production, FED interest rate decision, statement, economic projections and press conference. New Zealand GDP.
Thursday
Australian unemployment. Swiss interest rate decision, policy statement and press conference. Bank of England interest rate decision, minutes, policy summary. European Central Bank policy decision statement and press conference. US jobless claims and retail sales.
Friday
UK retail sales. UK, US, German and EU S&P composite, manufacturing and services PMI’s. EU core inflation and trade balance.
As you can see, there is an immense amount going on this week in the economic markets, with plenty of central bank activity going on surrounding interest rates and policy statements to give future inclinations as to what each area might do next and how that could affect the currency markets in the coming month. As the year comes to a close, these could be key insights and give clear indications how a currency might perform so if you have a currency exchange, buying or selling to make, ensure you contact one of the team today for some friendly guidance.