UK: Weekly FX Market Update 14 August

GBP

• Will the UK economy continue to grow despite its issues of high inflation, labour shortages, a possible housing crisis and higher interest rates?

• Or will it decline and fall into stagflation as the National Institute of Economic and Social Research (NIESR) expects?

• Last Fridays GDP beat the forecasts and showed 0.5% monthly growth, 0.2% quarterly growth and a 0.4% yearly gain – and yet there wasn’t any significant impact on the pound.

• UK unemployment data is released this Tuesday and UK CPI is released on Wednesday.

• If unemployment and CPI jump higher, that could show a step towards the NIESR stagflation path and produce a weaker pound.

• If unemployment stays steady, or even declines, and inflation moves lower as expected, could sterling strengthen?

EUR

• At the start of the Ukraine war, the euro weakened on news of energy price rises and threats to pipelines being closed.

• Last week, Liquid Natural Gas prices spiked higher by 40% over fears of an Australian worker strike.

• The euro was relatively unmoved, but Goldman Sachs is warning that European prices could double or even triple this winter.

• Could these issues illicit the same euro weakness response?

USD

• US GDP is 2.4% , Yearly US CPI is now a pleasing 3.2% and the US continues to add new jobs with 187k added in July. What will the Fed decide in September and how will the market react?

  • Would a hold on rates be treated as a reason to sell the dollar as the hiking cycle comes to an end?

  • Or will this be regarded as positive reflection on the US economy, with a ‘soft landing’ expected, and a period of US Dollar outperformance against the pound and euro?

Main events for this week:

Mon Aug 14

No top Tier Data

Tue Aug 15

All Day France and Italian Bank Holiday

02:30 AUD MPB Meeting Minutes

03:00 CNY Industrial Production

07:00 GBP Claimant Count Change/Average Earnings/Unemployment Rate

10:00 EUR German ZEW Economic Sentiment

13:30 CAD CPI

13:30 USD Retail Sales

16:00 USD FOMC Kashkari Speaks

Wed Aug 16

03:00 NZD Official Cash Rate

04:00 NZD RBNZ Press Conference

07:00 GBP CPI

10:00 EUR Final GDP

13:30 USD Building Permits

14:00 USD Industrial Production

19:00 USD FOMC Meeting Minutes

Thu Aug 17

02:30 AUD Employment Data

13:30 USD Unemployment Claims

Fri Aug 18

07:00 GBP Retail Sales

10:00 EUR Final CPI