A wild week in global markets ended on a positive note for sterling, which overcame a period of volatility to end proceedings only slightly down against its major rivals.
Friday saw the pound rise by almost half a cent against the euro and the US dollar. For all the sound and the fury of Monday and Tuesday, GBP/USD fell by just half a per cent week-on-week. By the weekend, stock markets had recovered and the mood turned from relief to optimism.
While global markets thanked their lucky stars that the panic was contained, sterling must now contend with a more uncertain period. The UK will release unemployment, inflation, GDP growth and retail sales figures this week. Plenty of potential banana skins, in other words.
Amid this, a storm quietly brewed in the US. After the recent hysteria around the American economy, it seems most traders are now pricing in not just a cut from the Federal Reserve in September, but a big one. A 50 basis points (0.5% to you and me) cut is now the odds-on favourite to be its decision, rather than the more tentative 0.25% the European Central Bank and the Bank of England opted for.
The trouble is that not all economists agree with that view. Many think a 0.25% cut is the most likely choice. Were that to happen, the US dollar could benefit, yet the S&P 500 and the NASDAQ stock indexes would be unlikely to take the news very well.
Here’s what to look out for this week…
A busy week kicks off in earnest on Tuesday with UK unemployment and the German ZEW economic sentiment index. July’s PPI figures for the US feature in the afternoon session.
Wednesday is inflation day, as both the UK and the US report core and headline reads for July.
UK GDP follows on Thursday, with economists projecting growth in the second quarter to reach 0.7%. We’ll then have US retail sales around lunchtime.
Retail sales for the UK arrive on Friday before US preliminary building permits and the Michigan consumer sentiment study cap off a data-heavy few days.
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