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Both GDP & inflation data in focus this week

Key BoE member speeches on the calendar this week too..



It has been a couple of rather quiet data weeks for the UK, which has seen the £ benefit. All change this week though, as GDP news is a key market driver and we will find out just how resilient Sterling is at the current key levels. Still, for now, the Pound is enjoying multi-month highs against a basket of currencies including the struggling USD.

We will find out on Thursday how much industrial action has hurt GDP in the month of February. Consensus is expected to show a minor increase of 0.1% which will do little to move the Pound. However, either a stronger or weaker reading will create volatility and some analysts are citing a weaker figure will be the result due to walk-outs in the month.

Potential volatility will also come from BoE member speeches as they comment individually on what path the bank may need to take near-term. Of late, these have been non-events, but, it was only a month-or-two ago that comments could easily influence a currencies value by 0.5%+. 

There is nothing of note for the Euro-Zone economically this week and so the single currency will be moved by events elsewhere. This has worked against the Euro in recent times, but it feels like the Pound is more set up to fail this week after enjoying what seems like a long run of success.

RBC & CIBC Capital Markets all expect to see a stronger Euro over the coming days and weeks with both UK & US data letting down their respective currencies. The Euro has performed negatively when in a sitting duck position and so we don't really share the view that £-€ rates will dip over 1% from the current position, but remain open-minded a fall of some kind could be expected. 

The main concern for the Dollar this week comes in the form of inflation data. A stronger than expected reading will create USD strength, as it means the Fed must still do more to curb inflation. A slightly weaker reading is expected with core inflation going the other way, so a real 50-50 call here. 

The £-$ rate is still riding high, but a hit on the value will be felt if inflation comes in hot. A possible 2% drop has been cited by Commonwealth Bank of Australia, but again this isn't really a justified view in our opinion, even though the pair is trading in the higher end of the trading swing currently.