Is Sterling Running out of Steam?

By Matthew Vassallo

Whilst the Pound remained relatively range bound against its two major counterparts – the Euro & US Dollar – for the majority of last week, investors will have likely been left uninspired by the late flurry of uninspiring UK economic data releases.

All eyes were fixed sharply on UK Inflation data & UK Retail Sales figures released Thursday & Friday respectively, with both key data releases acting as a stark reminder that the UK economy has a long way still to go on its current road to recovery.  Whilst inflation did fall from the previous months figure of 10.4% down to 10.1%, this modest improvement did not match the market’s expectation that we would finally see a move back below 10%. This despite the Bank of England’s continued commitment to raise the UK’s base interest rate, which currently sits at 4.25%.

The central bank & UK government have continued with their rhetoric that the current sky-high inflation numbers will have halved by the end of this year, a claim which is being tested by opposition parties and financial analysts alike as the months tick by. The current inflation data can perhaps be presented in a more optimistic light, based on the fact the current numbers were somewhat skewed by the 19.2% food inflation. Even this argument though will likely fall flat, as it just serves to reinforce the fact that the current cost of living crisis is still very much ongoing.

What could be of even more concerns to the BoE is how disappointing UK Retail Sales released on Friday proved to be. Sales in the UK fell to 0.9% month-on-month after they rose to 1.1% in February. Once again it was food sales that were a key drag, as the numbers fell by 0.7% in March, following a rise of 0.6% in February.

Coupled together both the current inflation & retail sales figures show that consumer spending is down, and this is without even considering the fact we are yet to feel the full impact of the central banks aggressive rate hikes until later this year, which could lead to a spike in the UK unemployment figures over the coming months.

Following some key UK data releases last week, we have almost nothing of note coming out this week that could act as a catalyst for any prospective upturn for the Pound. As such, investors will likely look to US Consumer Confidence figures released tomorrow, along with their trade balance figures on Wednesday. Looking further ahead this week and Thursday brings the key release of US GDP data, alongside Eurozone Consumer & Industrial Confidence figures.

Friday brings the only UK economic data release of the week in the from Nationwide Housing Prices and key Eurozone GDP data. It is likely then that Thursday & Friday will be if any the key dates for those with any upcoming GBP/EUR & GBP/USD currency exchange requirements.