Markets Ponder the Pound

11 August, 2014

Tom Arnold

This week starts off with the markets in somewhat of a quandary over what to do with the Pound. Over recent weeks we have seen Sterling drop away from the multi-year highs it had achieved, following various negative data releases from the UK economy. The overall position is still very strong though, with unemployment and growth still performing well, and certain sectors – services for example – showing very strong readings.

So what to do… Is the recent decline in Sterling strength a game changer and the shifting of a trend, or is it simply a correction after such a sustained period of growth?

In short the answer is probably; “it is too early to tell”, and we shall have to wait and see how the next couple of weeks of data compare to expectations. For those of you with an upcoming currency purchase, it is critical that you take this concern on board – it is always very easy to assume that recent highs can easily be regained, but if the trend has shifted, that will simply not be the case.

The week ahead starts off very slowly, with nothing of any note apart from a confidence survey in Europe on Tuesday, but then kicks in with a bang on Wednesday with many key releases. Most notably for the UK we have the Bank of England quarterly inflation report, which will give a key indication of what policy makers believe is coming up and might go some way to answering the trend/correction question. We also have updates on unemployment and GDP from the UK this week, so again these will be highlighted.

Various pieces of European data might give us some clue as to what to expect from the Euro in the coming weeks, but with the focus firmly on the US Dollar and Sterling at the moment, the weak Euro is struggling for interest let alone any positive boosts, and is unlikely to be helped by the bank holiday in Europe on Friday.


European ZEW Survey

German/French/Spanish CPI Inflation
UK Unemployment
European Industrial Production
BoE Quarterly Inflation Report
US Retail Sales

German/French/Portuguese GDP
ECB Monthly Report
European CPI Inflation
European GDP
US Jobless Claims

European Bank Holiday

As ever, make sure to stay in close contact with your CI account manager to be kept informed of what is happening, how it will affect your upcoming currency purchase and what your options are.