By Simon Eastman
Friday closed off the week with sterling holding firm, as UK GDP showed a slight improvement from expectations.
The UK seemed to be dodging recession with a better than forecast GDP reading of 0.3 percent, compared to 0.2 percent expected, which was a stark increase from the minus 0.3 percent from last month, meaning the UK escapes a technical recession, for now. In addition to the GDP reading the UK also saw trade balance and manufacturing and industrial production figures which all came out as expected. As such, the pound did little ahead of the US open, trading within a tight range against both the euro and the US dollar.
The pound dropped off across the board as US trade opened, ahead of a raft of USD figures came out regarding producer prices, all of which showed a lower than forecast figure and led to the pound regaining all the losses seen ahead of the markets open. With US inflation rising against expectations on Thursday, it is yet to be seen what, if any, action the Fed might take, or what stance they will adopt for future monetary policy. So, whilst the pound is taking the benefit at the moment, trading at near a 12-month high against the euro and some 3 cent higher from the month’s low against the US dollar, these rates could only be here for the short term.
The pound is a risky asset and if markets start to get spooked by the US reversal in economic recovery or the escalating situation in the Red Sea, we could see a shift from risky investments to risk averse, which generally benefits the US dollar.
The week ahead brings some key UK data including the all-important inflation reading and UK and US retail sales. The full list of key releases is listed below:
Monday
EU industrial production, Bank of Canada business survey, AUS consumer confidence.
Tuesday
German inflation, UK unemployment and average earnings, German and EU ZEW economic sentiment survey, Bank of Canada consumer price index.
Wednesday
UK inflation, EU inflation, US retail sales, US Beige book (key indicator of economic health)
Thursday
AUS employment, US housing data.
Friday
German inflation, UK retail sales, Canadian retail sales, US consumer sentiment index.
It’s a busy week with plenty of top end data releases to affect market conditions so if you have an upcoming currency requirement speak to one of the team today for some friendly guidance and to discuss the different contract options available to mitigate your currency risk.