The pound – which is still reeling from the Bank of England’s (BoE) failure to hike interest rates – plunged to its lowest level against the dollar this calendar year on Friday. Driving its decline was fresh data showing the UK economic recovery is stalling and a stronger dollar, which rallied in the wake of surging US inflation – a scenario that’s strengthening the prospect of the US Federal Reserve raising interest rates.
The GBP USD rate dipped as deep as 1.335 – its lowest level since December last year – before settling above 1.34 over the weekend.
More potentially influential data is on the horizon for the pound this week that could cause the UK currency to sink or swim.
Inflation and employment data in focus for pound
UK employment and inflation numbers will be closely monitored by investors in the pound this week.
Jobs data released by the Office for National Statistics (ONS) hits the headlines Tuesday. The ILO Unemployment Rate for the third quarter – the number of unemployed workers divided by the total civilian labour force – is expected to remain at 4.5%.
The BoE has stressed that it’s paying particularly close attention to the job market after the UK government ended its salary support scheme in September.
Any deviation from the market forecast could have a notable impact on the pound.
Inflation figures for October are published by the ONS on Wednesday. The consumer price index eased to 3.1% in September from 3.2% in August.
If consumer prices push higher, expectations of an interest rate hike by the BoE next month will gather momentum.
Article 16 of the Northern Ireland protocol could create further headwinds for the pound this week. Negotiations on the protocol are deadlocked, with diplomats expecting the British government to trigger Article 16 within weeks in a bid to rework Northern Ireland’s controversial post-Brexit trading arrangements.
Fed officials’ comments under the spotlight
Bets are high for earlier Federal Reserve interest rate hikes after data last week showed the fastest US inflation in three decades. Markets are pricing a first rate rise by July and a high likelihood of another by November.
A raft of speeches by Fed officials throughout the week – including Vice Chair Richard H. Clarida on Friday – could provide further clues about the central bank’s timeline for increasing borrowing costs next year.
Retail data for October is published by the US Census Bureau on Tuesday. This leading indicator of consumer spending is forecast to hold steady at 0.7%.
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