By Lauren Buckner
After a huge week of data last week the Pound appears to have retreated to safe territory across the board and sits slightly softer versus both the US Dollar the Euro.
Thursday’s Bank of England policy meeting saw a more dovish tone from the MPC (monetary policy committee) who stabilised expectations of continued rises to interest rates through to the end of the Year. This saw demand for the Pound drop back despite the further 0.25pc raise to interest rates at 5.25pc, the 14th consecutive raise and taking UK interest rates to a 15 year high.
The BofE acted in response to UK inflation levels dropping to 7.9pc – a respite from double figures, suggesting that they had no set path for continued rate rises (quashing expectations of these to continue) but highlighting that UK consumers will need to learn to cope with higher interest rates for some time with inflation not expected to return to the Bank’s 2pc target until Q2 2025.
Higher interest rates have already led to a slow down in the UK housing market, with house prices released at a 14 year low in recent weeks and again this morning at over a 2pc decline in July – the first sign of an economic slow down, resurfacing concerns that the high cost of living is gripping UK growth forecasts, although the Bank did state that they believe we will avoid a technical recession.
Looking forward the main test for the Pound this week will be Friday’s GDP and economic figures, any suggestion of a flatlining economy will cause ripples and therefore current levels look favourable.
Although Sterling is undoubtedly sensitive to a shift in sentiment, the Pound currently remains the second best performing currency for the year behind the Swiss Franc. We have seen a slight retreat in value but still sit in key ranges versus both the Euro and the US Dollar – looking forward the outlook is increasingly uncertain, proceed with caution on your FX exposure and exploring ways to protect your risk via forward contracts or hedging strategies could be the sensible option.
Data this week
Monday
EU: German industrial production (released -1.5pc this morning)
UK: BofE Pill’s speech
Tuesday
EU: German consumer prices
Wednesday
China: Consumer price index
Thursday
US: Consumer price index
Initial jobless claims
Friday
UK: Gross Domestic Product (Q2)
Industrial production
Manufacturing production
US: Producer price index
Michigan consumer sentiment index