Anticipation of more interest rate rises from the BoE surfaced last week, helping breathe some strength back into the Pound, which was much needed after a week of gloomy data releases around the UK economy.
RICS (Royal Institution of Chartered Surveyors) reported that the outlook for the UK housing market is reaching levels not seen since 2009. High mortgage rates putting pressure on the property market, coupled with some disappointing retail sales figures, both paint a picture for an unattractive future for the UK. With the British economy still remaining smaller today than it was pre-Covid, sources are hinting at a 60% likelihood of the UK entering a recession in the next year.
For now however, the UK has avoided recession. UK GDP figures were a happy surprise on Friday and helped the Pound rebound after the ONS reported that the economy experienced 0.50% monthly growth and a 0.20% increase in the second quarter. This was largely off the back of a recovery in car manufacturing. While the growth may only seem small, it does show as a positive sign that the UK economy is at least not shrinking and opens the doors for the BoE to be more aggressive with their rate hikes, given that resilience in the UK economy was one of the largest factors that will affect its decisions.
This week is heavy on the data front for all. From the UK we have inflation figures (UK CPI) released on Wednesday, along with figures for retail sales released Friday. Inflation figures are due to come down slightly, however still nowhere near their target rates. Retail sales figures are also due to come down slightly, highlighting households may be coming under more pressure with interest rates as high as they are.
With data releases from the Eurozone and the US this week, we expect Sterling to be in for a turbulent few days.
More disappointing industrial data from Germany last week weighed on the Euro, with lack of much other data to give the Euro any real direction.
This week sees the release of EU GDP figures on Wedneday. If stronger than expected, then we can expect to see gains made against both the Pound and Dollar.
US Retail Sales figures are released tomorrow with the consensus being a 0.40% increase, showing that consumer confidence may finally be picking up once again.
This coupled with the inflation data coming out of the UK this week means that we could see GBP|USD struggle to get back above that 1.27 level.
With the Fed also announcing that all future decisions are going to be heavily dependent on data, investors and speculators will be watching key data releases closely this week, no doubt causing some volatility.
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