GBP Weekly Outlook: Resilient Pound Prepares for Data Heavy Week
Despite the recent bounce from 1.2275, the GBP/USD exchange rate continues to trade in a neutral trend mode. The pair is expected to continue its advance but is vulnerable to lingering interest rate risks. The upcoming week offers a number of data points that will likely fuel the move.
The Bank of England will publish its policy statement along with an interest rate decision on Thursday. Analysts are predicting a 50 basis point increase, which would widen the interest rate differential between the two currencies. This is expected to be a smaller hike than the 75bps increase that was implemented in the previous meeting. If this is the case, the pound could take a step back in price.
Inflation figures for the UK are set to be released on Wednesday. The Consumer Price Index (CPI) is expected to fall to 7.3% in November from 7.7% in October. However, Core CPI is forecast to come in at 0.3% monthly, which is below the market’s expectation. If this is the case, the US Dollar is likely to strengthen.
Inflation figures for the UK could have a significant impact on the interest rate policy of the Bank of England. Wage growth will also be closely monitored. Per-person employment costs rose by 12.6% annually in the first quarter of this year. This suggests that the pace of wage growth will slow in the near future. The Bank of England may need to raise interest rates to tamp down the rising inflation.
In addition to the inflation figures for the UK, there will be a range of data that will impact the Pound Sterling. Among the highlights are the ISM services PMI and employment data. These two reports will be a great source of information about the health of the UK economy.
The UK government will publish a mini-budget, which includes additional spending and tax cuts. This could prove to be a smart move for the long term. In the short term, the Pound will have to recover from its post-Bank of England blow. This will be accompanied by concerns over the economy’s future. The ILO Unemployment Rate climbed to 3.7% in the three months to October. This is higher than the 3.6% reading for September and represents a significant jump from the ILO Unemployment Rate in the second quarter.
Meanwhile, there are lingering concerns about the global economy and Europe. The second coronavirus wave has increased tensions in the region. This will be a key theme for the week. Energy prices will also be a factor. The cost of living crisis is another factor that will play a large role in the pound’s outlook.
A few other key events are scheduled for the week. There will be a range of speakers, including Christine Lagarde, Fabio Panetta and Chief Economist Huw Pill. Other highlights include the release of the minutes from the July Federal Reserve meeting. The US inflation report will also be of interest, particularly as it will have a major impact on the valuation of the US Dollar.