Sterling effectively moved sideways this week although there were some significant movements seen throughout the week. It is close to a multi-week low against the euro and we are waiting to see if sterling “bounces” up from the current level or there is a catalyst that suddenly appears to weaken it further. Against the US dollar the trend has been one of sterling weakness over the last few months and it is difficult to see what will happen to change the current trend especially as the US is likely to increase interest rates before the UK.
Tuesday saw an unexpected rise in UK inflation, to 1.3%. With strong data from elsewhere, and lingering fears over disinflationary pressures, this had a muted effect, with sterling sliding against both the euro and US dollar. The release of minutes from the latest Bank of England (BoE) meeting on Wednesday saw sterling recover much of its lost ground, revealing that some policy makers believed rising wage growth could fill economic slack sooner than anticipated. With the increased pressure this would apply to the BoE to raise interest rates, investors were quick to support sterling. This strong sentiment continued into Thursday, with a greater-than-expected increase in retail sales of 0.8% helping sterling to finish higher against most of its major trade partners.
A relatively quiet day today sees testimony from European Central Bank President Draghi in the morning taking centre stage, before UK public sector net borrowing data is released later in the afternoon.