By Nick Harrison
The day has started off with the release of the UK’s Year On Year CPI data. CPI is the Consumer Price Index and is the key indicator to a country’s inflation. This is important to the value of a currency because rising prices lead the central bank to raise interest rates in order to curb inflation, thus strengthening that currency. On the flipside, lower inflation will lead a central bank to potentially cut the interest rate. This morning’s figure came out at 2.5% which is slightly under the forecasted and previous 2.6%. The Bank Of England’s Monetary Policy Committee has a remit to control the inflation figure to 2%, so this has edged very slightly nearer that target level. Inflation looked to remain stubbornly high this year in the UK and it was looking like the Bank Of England might delay their interest rate cuts while this level played out in 2025. This morning’s figure though has possibly changed that outlook and if inflation continues to fall, then interest rate cuts could be back on the cards. The market has reacted so far this morning by putting the Pound under further pressure, so further volatility is expected today.
Yesterday, the Pound made a very small recovery against the US Dollar after a weaker than expected US Production Price Index figure was released. This didn’t stop the rot though as Sterling continued to trade against the US Dollar at the lowest level we have seen since October 2023. Likewise, the Pound was trading yesterday at the lowest level since November last year against the Euro as faith continued to drop about the strength of the UK economy. The UK Chancellor Rachel Reeves was speaking in Parliament yesterday and somewhat skirted around big questions about the governments debt policies, indicating the Pound will remain under pressure for at least the short term.
As mentioned, the inflation figure has already been released, but we also have the UK GDP figure being released tomorrow and UK retail sales being released on Friday. The GDP figure is an important measure of economic activity and the primary gauge of the UK economy’s health. Last time, the figure came out at a negative 0.1% with Thursday’s forecasted figure showing a small increase of 0.2%. If this figure contracts again, the we could well see a further Pound selloff against the EUR & USD. Likewise with the Retail Sales figure coming out on Friday. The Retail Sales figure, is the primary gauge of consumer spending, which accounts for the majority of overall economic activity. The previous figure showed a slight increase of 0.2% with the forecast being an increase of 0.4%. So a huge amount of focus will be on these two remaining data releases this week in the UK. Also, as if that isn’t enough, we have UK unemployment, manufacturing and services data releases out next week, so this could be a year defining month for Sterling.
Just to put things into perspective – If you were buying a EUR 250,000 property abroad last week compared to this week – the impact of the falling Pound would have cost you an extra £2,500 this week. That’s just a matter of a few days, so with a continued downside risk, you can imagine how much more you could potentially be at risk. Our Currency Consultants are on hand to talk you through these volatile trading times, so do reach out to hear how we can help you take that risk off the table.
Elsewhere, US Inflation, Retail Sales and Unemployment add to what is likely to be a volatile week in the FX market.
Remaining Economic Data This Week
WEDNESDAY
US CPI (Inflation) 1.30pm
THURSDAY
UK GDP 7am
US Retail Sales & Unemployment 1.30pm
FRIDAY
UK Retail Sales 7am