Busy Week of Data Could Move the Markets

14 August, 2017

Tom Arnold

Recent weeks have been pretty horrific for the Pound with Brexit negotiations, political uncertainty, Bank of England growth forecast downgrades and critically any chance of interest rate hikes being stopped by a drop in UK inflation, all leading to a massive bout of Sterling weakness. Rates for buying the Euro and the US Dollar have dropped by 5 cents and 3 cents respectively in the last month.

August is typically a quiet month thanks to the usual summer vacations, and so trends often take over in the absence of significant market action, which has only led to further weakening for the Pound as trends are all against it.

The week ahead is a busy one with all of the usual mid-month data releases due, most notably UK inflation, unemployment and retail sales numbers, US FOMC minutes and European GDP. With both Europe and the US currently outperforming the UK it would be no great surprise to see a continuation of the recent Sterling decline, this is further likely thanks to the failure of the markets to particularly care when positive UK data comes out, as highlighted last week by the positive industrial figures which failed to halt the rot. If there is one potential glimmer of hope it is UK inflation due on Tuesday – last month’s drop in inflation was the main reason that the Bank of England reduced the chances of UK interest rate hikes. If this surprising drop were shown to be a one off and inflation went up again, then a spike of Sterling strength could come, but if not then we would expect to see Sterling’s slide to continue.

European Industrial Production

German GDP
UK CPI + RPI Inflation
UK PPI Inflation
US Retail Sales

UK Unemployment Rate + Claimant Count
European GDP
US FOMC Minutes

Australian Unemployment Rate
UK Retail Sales
European CPI Inflation
European Trade Balance

German PPI Inflation
European Current Account
European Construction Output

With the Pound on an almost unstoppable falling trend it is of vital importance to make sure that you have a strategy for your upcoming currency requirement. If you have Sterling in hand then you should almost certainly look at securing your rate as soon as possible to remove the risk of the rate dropping further – you can do this using a forward contract, even if your requirement is some way off. If you are selling your currency to buy Sterling then things are looking good – you do need to be wary of possible reversals if key data such as UK inflation does surprise analysts, so don’t assume everything is going to be guaranteed to keep improving. Either way make sure you stay in close contact with your CI account manager to discuss your options.