Over the last week we have only seen a slight recovery on Sterling exchange rates, with GBPEUR now reaching 1.1680 and GBPUSD now reading 1.2750- which is still 1.5% away from the highs just two weeks ago.
We have seen a material change in the market since the BoJ decided to raise interest rates, however since then, they have stated they probably will not continue with hiking rates for the time being, but this doesn’t seem to have completely calmed the market, just two weeks ago most banks were announcing the biggest bull bet on Sterling since before Brexit, but charts are now showing us otherwise. The bigger picture here is that the BoE will have rates higher for longer and will probably be pretty slow in regards to rate cuts, with 100 bps expected between now and next year, which for me is still pretty good for the Pound and would be a good enough reason to be long Sterling, it will be interesting to see how the market reacts once the Fed cuts and the ECB cuts again.
This week we have a few data releases of note, however on Monday we are clear from any releases so I don’t expect the beginning of the week to be too volatile- once we get to Tuesday we have UK unemployment numbers where we are expecting the unemployment rate to rise to 4.5%, which backs the case for more interest rate cuts in the UK as less people employed does not justify higher interest rates. This will be followed by the ZEW EU Economic sentiment index which is expected to be a lot lower for August, which I expect will weaken the Euro slightly. Later we have US PPI which is expected to come down by 0.1%, this is positive as lower producer prices should also mean lower consumer prices, and should reflect in the inflation rate.
On Wednesday we have the RBNZ rate decision where we are not expecting any changes in monetary policy, later in the morning we have UK inflation where core inflation is expected lower at 3.4% which should be positive for the UK, but as this means the BoE can cut again, I am not sure if this is good for the Pound, this will be followed by EU GDP numbers which are expected on par with the previous release, so I do not expect to see any movement on this release. Later we have US inflation where core inflation is expected to be down 0.1%, this should be a boost for GBPUSD as this means the Fed are closer to their 2% target and can cut rates in September.
On Thursday we have UK GDP numbers, there are no expectations out yet, but if we see a positive number this will bode very well for Sterling, however a negative number will see GBP weaken off, this will be followed by U.S retail sales which are expected to be higher at 0.3%- this will be followed by a few Fed speeches which I assume will be advocating for a rate cut. Finally, on Friday we have UK retail sales, which should hopefully come in stronger due to the Euros and better weather in July.
