Another unpredictable day for sterling on Friday, with recovery from a 13-month low seen against the euro. With no economic data of note released from the UK on Friday, sterling movement was largely dictated by events elsewhere. Profit-taking against the euro saw sterling make up ground against the single currency, whilst better-than-expected retail sales data from the US saw sterling fall against the dollar. At the start of today’s trading we have seen a “gap” upwards for sterling against the euro which may be a consequence of Draghi making a speech later today and worries over what he may say to undermine the euro.
Despite a quiet start to the week, UK inflation data will be a key figure when it is released tomorrow. With negative inflation fresh in the memory, investors are likely to take a positive view of sterling should inflation reach the 0.3% forecast throughout January. Wednesday’s average earnings index will also be closely watched, with positive wage growth indicative of a positive economic climate. On Friday we have retail sales figures for the past month which are expected to show a strong rebound from the 1% contraction experienced in December. We also have the Public Sector Borrowing Requirement which will be very carefully scrutinized given that January is a key month for tax collections and we have a UK budget coming up very soon.
We also expect further “revelations” on the In/Out vote of Britain’s membership of the European Union with regard to timing and as to what concessions have been negotiated with its other members. This will have an effect on sterling.