Currency Note

Activity accelerates for the week

By Smart Currency October 11th, 2016

interest rate hike

Activity accelerates for the week

This week’s activity accelerates today, as more significant data releases are due. Sterling is on the defensive after its recent slide, and the upcoming economic releases as well as ongoing Brexit uncertainty will continue to influence the currency’s performance. Sterling weakness has had a knock-on effect on its major peers as well, so we could be in for a busy week.

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Could the UK face inflationary pressures?

Sterling was once again on the defensive on Monday following last week’s “flash crash”. While the currency has stabilised it was trading below some key psychological levels during the first trading session of the week.

With the data flow limited for the start the week, it was yet another opportunity for analysts to discuss the impact of Brexit. This time it was the British Retail Consortium (BRC) who has warned that retail prices could go up as the retail sector fail to absorb increasing costs. The BRC is warning that if the UK loses barrier-free trade with Europe, it would be inevitable that we would revert back to World Trade Organization (WTO) rules, which would see tariffs rise. The BRC went on to give examples of tariffs on clothes of up to 16% and on meat of up to 27%.

The UK is already facing price pressures as sterling continues its slide, and the risk of additional tariffs will compound the issues of inflation. The concern will be that the UK could face inflationary pressures in an environment where growth is limited and, as a result, job growth and salary growth is tepid. However, nothing is set in stone yet.

Today, much of the focus will be on Bank of England (BoE) member Michael Saunders who is due to testify before the Treasury Select Committee.

Crucial data releases from Eurozone today

Yesterday saw Germany release a raft of positive data. Its trade balance as well as export and import figures all improved. Italian industrial production data also showed improvement.

Portugal, however, saw a worsening in its trade balance and France had a bond sale. The euro remained stable against the pound, and weakened slightly against the dollar, but this movement was mainly driven by sentiment within the US, surrounding Hilary Clinton’s improving polling data.

Today sees the prominent economic think-tank the Centre for European Economic Research release economic sentiment information for both Germany and the bloc as a whole, as well as data on current economic conditions within Germany. There is also a sale of Spanish bonds. Given the prominence of the Centre for European Economic Research, any shocks in the data released will likely translate into volatility for the euro.

US Federal Reserve meeting under the spotlight

With it being a Bank Holiday in the US on Monday, markets were again driven with sterling movements. And with minimal data releases due for today investors will be looking forward to the second half of the week, with the US Federal Reserve Meeting Minutes on Wednesday, the weekly unemployment claims figures on Thursday, as well as the retail sales data on Friday. All of these will be key pieces of data that the Federal Reserve will want to monitor to justify a potential interest rate hike later this year.

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