This weeks data, and the effect on GBP rates.

Sterling hit a 1 month high against the US Dollar on Friday, buoyed by a rally in higher-risk currencies and by the view the Bank of England’s decision to keep monetary policy unchanged suggests the UK economy may be stabilising. Pound rates at 09:00am are as follows:

  • GBP/EUR 1.1393
  • GBP/USD 1.6589
  • GBP/AUD 1.9335
  • GBP/NZD 2.3732
  • GBP/CAD 1.7968
  • GBP/CHF 1.7227
  • GBP/ZAR 14.422

The reason we saw gains, is that the bank kept rates on hold, and also decided no further Quantitative Easing is required at the moment. As markets had expected further QE, Sterling strengthened towards the end of last week, giving some brief opportunities for clients to buy at healthy levels.

A rise in European share prices also boosted appetite for risk, which helped keep sterling demand intact, while a slightly better than expected rise in UK producer prices suggested that inflation risks have not completely disappeared.

“As the risk of a rate cut and negative announcements from the BoE have disappeared … all we need is for global sentiment to be OK and nothing bad to happen” said Peter Frank, currency strategist at Societe Generale in London.

“The data doesn’t have to outperform, it just has to be in line with expectations, and then we’ll see sterling go higher as specs close out existing state shorts out there.” So, some positive noises from some analysts, however others dont see the pound in such positive light. As outlined in Fridyas report, David Blanchflower, who used to be a policy maker at the BoE, signalled that he expects more QE in the future, and so this dampened any further recovery for Sterling.

The pound also drew strength from a small rise in weekly UK department store sales announced on Friday, which added to signs domestic consumer demand may be recovering. Data on Friday showed UK producer input prices rose by 2.2 percent in August, much more than expected, which pushed up factory gate inflation 0.2 percent higher on the month. Forecasts had been for a 0.1 percent rise.

Also helping the pound was the BoE’s announcement on Thursday it would hold its lending rate at a record low 0.5 percent and keep its 175 billion pound asset-buying programme unchanged, while not implementing other policies to stimulate the economy and lending.
The decision reassured some in the market who had been bracing for the possibility of additional measures, such as cutting the rate it pays banks for holding reserves with it.

So, some restbite for Sterling as better news helps exchange rates rise. With uncertainty however on what the BoE will do next month, rates are still very volatile. Markets will look to data releases to see how well the economy is recovering, and the data released over the coming weeks will sway these BoE decisions.

This Weeks Data
The data releases this week are extensive, and we see some major news from the UK, EU and US. Today is fairly quiet, with some house price data for the UK, and employment data for the EU. The real fun starts on Tuesday, with UK data showing the state of the retail market and housing prices, in addition to some inflation data.

Later in the week we have unemployment data for the EU, UK and US. We also have interest rate decisions by Japan and Switzerland.

EU – Industrial Production
EU – Employment Change
UK – RICS House Price Data

Aus – RBA Minutes
Swi – Industrial Production
UK – Consumer Price Index
UK – DCLG House Prices
UK – Retail Price Index
EU – Labour Costs
Ger – ZEW Economic Sentiment Survey
EU – Growth Forecasts

US – Producer Price Index
US – Retail Sales

Aus – Westpac Leading Index
Swi – Retail Sales
UK – Average Earnings
UK – Claimant Count
UK – Unemployment
UK – Jobless Claims
EU – Consumer Price Index
US – Consumer Price Index

Jap – Interest Rate Decision
UK – Retail Sales
EU – Construction Output
UK – Trade Balance
Can – Consumer Price Index
Swi – Interest Rate Decision

US – Jobless Claims

Jap – Leading Economic Index
Ger – Prodcuer Price Index
Eu – Current Accounts
Can – Wholesale Sale

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