Sterling is approaching the mid-point of February very close to where it started the month against the euro but having gained a good 1% over the course of last week.
While the news reports have focused on Friday’s official GDP data showing that the UK is not in recession (two quarters of GDP negative growth), the bigger story might be the 0.5% drop in the economy in December.
Given the two ways of looking at that kind of data, the markets will be looking out for more evidence of which way the economy is moving, and there will be plenty for them to chew on this week. Tomorrow at 7am it’s employment and earnings data. Will the interest rate rises have persuaded firms to stop hiring? How far have earnings fallen behind inflation again?
On Wednesday it’s the turn of inflation. In some respects the currency markets like high inflation, because it forces the central bank to keep raising interest rates, which means a bigger return. However there is a point where it just gets too damaging, with strikes and other negative results. Inflation rates remain on a knife edge and anything other than a clear fall will confound Bank of England expectations and almost certainly upset the markets. The question is, which way would they move?
Then on Friday there is the more practical side of all that – retail sales for January. That’s a practical, real-world reading of how householders are feeling about their financial situation.
If all this continues to show the UK economy struggling then we can expect the pound to weaken. The USA has similar data releases this week, while the eurozone is a little light on data this week.
Therefore it might be judicious to give your trader a call on 020 8108 5163 and discuss locking in your rate.
