Will Sterling be left out in the cold this Winter?

By Matthew Vassallo

The Pound has seen its value plateau against a majority of the major currencies since the turn of the month, with investors risk appetite for GBP starting to dilute. This stance is perhaps unsurprising given the UK’s current dovish economic outlook, which is in stark contrast to the more bullish predictions laid out by the UK government during the height of the summer (no pun intended). The Bank of England (BoE) also raised the markets expectations, as they cited a growing jobs market and steady inflation levels, as just two of the reasons as to why the UK was likely to outperform its previous end of year estimates.

Fast forward two months and inflation levels look set to reach 4% by December (double the BoE’s intended target), with contractions in the Manufacturing & Services sectors also a cause for concern.

The Trade Union Congress (TUC) are set to hold their annual meeting later today and it is expected that the union federation’s secretary Frances O’Grady will echo similar concerns regarding the UK’s current economic fragility. She is citing future concerns over repeated Covid outbreaks and climate chaos, as reasons the UK needs to be better prepared for future economic shocks.

Despite this seemingly dreary outlook GBP has managed to hold firm against both the EUR & USD I’m recent days, curbing any further heavy losses against the two currency heavyweights.

Whether the current support levels will hold firm may depend on how the UK government navigates the rising number of Covid cases, which are set to be tested further as the change in season approaches.

Looking at the US economy and concerns over rising inflation, along with the continuing media driven fallout from the US’s withdrawal from Afghanistan, is putting increasing pressure on US President Joe Biden. Reports indicating that US vice President Kamala Harris is keeping a low profile deliberately, as she looks to perhaps distance herself from the current negativity are also unlikely to help breed confidence in the global markets.

The USD is likely to remain immune to such negative perception, especially whilst the global economy remains fragile, with investors continuing to buy up the greenback due its historical safe-haven status.

Looking ahead and GBP looks set for a comparatively busy week, with some key UK economic data releases for investors to keep a close eye on.

Tuesday 14/09

UK Unemployment Rate (4.6% prediction down from 4.7% last month)

Average Earnings

Wednesday 15/09

Consumer Price Index (CPI)

Producer Price Index (PPI)

Friday 17/09

Retail Sales Figures (MoM & YoY)