What can we expect for the pound this week?
It is no secret that the pound has recently found favour, but this week are a number of events which could well move the market from current levels. This post will outline some of the week’s economic data releases and other themes to be aware of when considering any currency exchanges involving the pound.
The main reason for sterling strength of late is that it is looking less and less likely the UK entered recession in the first quarter of 2012. Most of the more recent data has indicated that the UK will have narrowly avoided recession, but we will not know until 25th April when the first estimate for Q1 is released.
The pound has also found favour because the UK has undertaken such strict budget deficit reduction measures in the last 18 months. This has made government bonds (gilts) one of the most secure and attractive investments in the world. In order to buy gilts in the UK, investors must buy pounds which is also keeping the pound strong.
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Tuesday – Inflation Data – CPI and RPI are the two measures. Inflation is still well above the Bank of England’s target of 2% and is watched closely by investors to see how the UK’s recovery is progressing and assess the likelihood of any interest rate hikes down the line.
Wednesday – Unemployment – Unemployment is a real weight around the shoulders of this government. Just how can the UK begin to move forward with more and more people being out of work? The knock on effects of high unemployment are disasterous – increased benefit claims, less tax revenue, less consumer spending etc etc.
Bank of England Minutes – We will find out how the members of the UK MPC (Monetary Policy Committee) voted at their last interest rate setting meeting. Is more QE on the cards as some have suggested?
Friday – Retail Sales – Some analysts put Retail Sales as accounting for 60% of UK GDP. Consumer habits are key in determining the outlook for the UK and hence the pound.
It is worth noting that the above data releases are (besides the Minutes) the figures for March. That is they will be indicative of how the UK fared in the first quarter for 2012, and hence the some of the last pieces of data before the GDP estimate for Q1, I referred to at the start of the post (due on the 25th April). It is likley therefore we will see movement this week ahead of next week’s GDP release as investors move funds ahead of the outcome to try to profit from what they expect will happen.
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