Could this be the week we see the Pound start a more sustainable recovery?

By Matthew Vassallo

Sterling rates plateaued toward the latter part of last week’s trading, as the markets continued to digest the Bank of England’s decision to raise interest rates again as expected. Whilst the central bank threw up no surprise with their decision to raise the UK’s base rate by 0.5%, it was the insight BoE governor Andrew Bailey gave at his subsequent press conference that may hold more weight for investors looking to get ahead of the curve.

As has been the case for much of the past 12 months, any more positive news in regard to the UK’s economic recovery is seemingly tempered by the opposite, leading to lack of risk appetite amongst investors and ultimately a more dovish market. This was the case once again as the BoE announced that they expected the current recession to be less pronounced and shorter than they had initially predicted. This immediately gave the Pound a boost, although there was little time for those with Sterling requirements to take advantage, as within almost the same breath, Andrew Bailey confirmed that the BoE’s current strategy of continuing to raise UK interest rates to counter the almost unprecedented high levels of inflation, wasn’t having the desire effect.

And so, the recent trend continued, with investors unable to decipher an almost contradictory evaluation of the UK’s current economic health and ongoing recovery.

Monday 13/02/23

Looking ahead to the current trading week and there is little economic data of note released today. Sterling did find sufficient support to curb any further losses towards the end of last week and as trading desks across Europe prepare for the opening bell, we are as we were at the close of trading on Friday, with the Pound thus far managing to hold the modest bounce back it achieved against both the Euro & US Dollar on Friday.

Tuesday 14/02/23

Tomorrow is likely to bring more market volatility, ahead of the UK latest employment data and the official Unemployment rate. With Average Earnings predicted to increase by 0.1% this month to 6.5% and the official unemployment figure predicted to remain unchanged at 3.7%, we could see the Pound recover some further ground, if of course the data is released as predicted. There is also Eurozone Gross Domestic product (GDP) figures to keep an eye out for, with this key economic barometer expected to show a prediction of 1.9% growth as previous.

Wednesday 15/02/23

Wednesday could be the main driver of Sterling exchange rates this week, with a host of inflation data released. PPI data releases have held more weight than usual with investors over recent months, due to the spiralling cost of living crisis and the BoE’s current (failing?) strategy of trying to counter this by continuing to hike interest rates. The current prediction is for inflation to come down from its current level of 10.5% to 10.3%, so if this prediction is factored into the current rates ahead of its release, we could see a further bounce for the Pound.

Thursday 16/02/23 – Friday 17/02/23

 A quieter end to the trading week means we’re likely to see additional focus on Friday’s UK Retail Sales figures, which are predicted to show a huge jump from -5.8% up to 1.8%.

Could this be the week we see the Pound start a more sustainable recovery?