By Matthew Boyle
Whilst Team GB continued to enjoy success at the Olympics, the upcoming week may not be as kind to the GB Pound. In a week that is data heavy and with some critical releases there are several ‘hurdles’ the Pound must overcome if it is to maintain its current ground following the Bank of England’s decision to cut interest rates at the end of last month.
After 2 months of UK inflation remaining flat at the target of 2%, we saw the BoE cut UK interest rates cut from 5.25% to 5% – the first cut following a programme of hikes to try and abate rising inflation – a distant cry from December 2001 when the rate sat at 0.1%.
The cut saw GBP buying rates fall overnight, dropping around 1.5% across most board but perhaps most noticeably against the Euro, having touched the best buying rates seen in around 2 years.
For many, the Bank’s move was an early surprise with around 65% of the market expecting the first cut to come this month or later.
Whilst a cut to rates might be welcome news to anyone with a mortgage, lower interest rates mean less buy-in from foreign investors – looking to get the best return for their own foreign currency.
However, since the cut on the 31st of July GBP has made somewhat of a recovery and against the single currency (EUR) and the greenback (USD) has regained over half of its losses seen following the BoEs announcement.
The week ahead looks like it could be a perilous one for the Pound with unemployment and retail sales data released but critically the latest inflation data announced on Wednesday.
While market analysts suggest we will see a drop in UK unemployment on Tuesday which would be good for the Pound markets are positioning for an inflation reading of 2.3% on Wednesdays release.
Whilst this might highlight sentiment that the BoE may have acted too early perhaps more concerning is how that now leaves the Pound positioned, given that a higher reading would benefit GBP rates this may in part explain GBP’s resurgence following the cut in rates.
Should Wednesday’s reading be closer however to 2% and all bets will be on for the BoE to cut again next month and with that huge downward pressure on GBP buying rates. Without doubt the week ahead is one of the toughest the Pound has faced in some time with several hurdles all of which could see it stumble or fall.
With rates still within a cent off the best they have been in 2 years for buyers and with sellers seeing their gains quickly eroded, this may well be a race you want to sit out. Speak to your A Place in the Sun Currency for some friendly guidance on how to remove risk and get the most for your money.
Mon
18.00 USD Monthly Budget Statement
Tue
06.00 GBP Unemployment Data
12.30 USD Producer Price Index
Wed
02.00 NZD RBNZ interest rate decision
06.00 GBP UK inflation data
09.00 EUR GDP data
12.30 USD Inflation Data
Thu
01.00 AUD Employment Data
06.00 GBP GDP data
12.30 USD Retail Sales
Fri
06.00 GBP Retail Sales
14.00 USD Michigan Consumer Sentiment Index