News from elsewhere likely to dictate sterling’s movements this week

The sterling index which measures sterling’s strength against the currencies of our major trading partners hit its highest level since 2008 last week. The key reasons for this are an economy performing well, unemployment below 7%, wages are growing faster than inflation and there is talk of increasing UK interest rates in 2015. This should signal further sterling strength but the recent trend has been for sterling to “hold its own” rather than gain ground. This is because inflation is below the 2% target, household debt levels are still high and therefore increased interest rates could well scupper the recovery. Similarly a strong pound could hit exports, a key area for the UK’s longer term growth.

The week ahead is relatively quiet on the UK data front, with the first major economic data from the UK being released on Tuesday in the form of preliminary growth figures for the first quarter. Expectations are for us to be slightly ahead of last year. Aside from this, the only major economic data from the UK comes in the form of the purchasing managers’ index for the construction industry towards the end of the week which is expected to show good expansion. However it could still be a week of rapid movements as there is a lot of news being released elsewhere, especially in the states.

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