UK inflation figure dominates the week ahead

Important week ahead for the BoE..


Last week's surprising UK GDP number has helped protect the value of the Pound for the weeks and months ahead, rather than immediately increase it like other unexpected data might have done. A 0.1% growth number on the face of it is obviously terrible, but it has delayed a technical recession and may have even shortened the inevitable one that is incoming.

With the economy weathering the storm and showing real resilience, the upcoming data for the UK puts an interesting spin on what the BoE may end up doing in 2-weeks' time. The most important of which is the inflation number that hit a 40-year high in October (due to the energy price cap) but then saw the biggest month-on-month fall since July 2021 the following month. A slight decline is forecast, but we could see a surprise in the data again here.

Employment and wages are expected to be pretty straight forward readings tomorrow with the retail sales number on Friday due to show some strong figures with it being around Christmas time. We could be seeing Sterling starting to bottom-out at the current cycle, but that call is still too early to make yet. 

The Euro is enjoying a resurgence somewhat with plenty going in its favour of late. €-$ rates have managed to climb to their strongest levels since April 2021 and the single currency is currently pegging Sterling back because of both internal and external factors. 

A sell-off of the $, China re-opening and positive energy news have strengthened its value almost overnight and so far things don't look to have moved into overbought territory. With the ECB still wanting to be progressive with interest rates this year, it could/should be a positive few months ahead for the €. 

Last week saw the US post its third successive decline in inflation which created volatility on all markets. The downtrend is significant news, as it means the FOMC is not far from ending its rate hike cycle (a key driver for markets). If Wednesday's retail sales report is negative (likely), it would reinforce the idea that high interest rates are restraining demand. 

There is technical support at the psychological barrier of £-$1.20 mid-market, but we should be seeing an uptick on this pair in the weeks ahead and a push to the 1.25 levels. Global investor sentiment is playing a key part here helped by the FTSE100 closing last week near an all-time high and US stocks finishing its best week since November. 


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