A positive end to the week saw sterling recover a little bit of ground against the US dollar as manufacturing production figures for November and the latest UK trade balance came out better than expected. This was the first time sterling had made a gain against the US dollar in over a week. Sterling was also able to continue its recovery against the euro throughout Friday, finishing the week in a marginally improved position.
A quiet week lies ahead on the UK data release front, with tomorrow’s inflation data providing the only key point of interest from the UK this week. After rising unexpectedly in October, UK inflation continued to slide throughout November, and we are expecting to see another drop in price growth to 0.7% for December. With the staggering fall in oil prices no doubt affecting this, it will be interesting to see what core inflation, which discounts volatile data such as energy prices, comes out as. It will also be interesting to see what effect the release has on sterling and the markets perception of when interest rates will rise. So we could see some significant movement for sterling in the first half of this week as the markets forecast and then react to the release, the difficulty is knowing which way the exchange rate will move.
Elsewhere, we will see the release of numerous economic indicators from the US later in the week, which could see sterling subjected to further downward pressure. We also have the European Central Bank meeting announcement on Thursday. So we should expect news from elsewhere to impact on sterling in the second half of the week.