This week continued the trend of the last, with a very strong USD, a weak Pound, and an even weaker EUR being a running theme. It was the latest CPI figures out in the US that really got the week going on Tuesday. After a disappointingly flat market following Andrew Bailey’s speech on Monday, we finally got some movement. CPI y/y was forecasted to come in at 2.9%, dropping from 3.4%. However, this did not end up being the case, with the latest reading coming in at 3.1%. Even though it was only a 0.2% difference, remaining above 3% on a psychological level meant the sell-off was more prominent, with the pound losing the best part of a cent against the USD following the release. Since then, the Pound has failed to regain that ground and is still trading in the same range.
That is not to say that it didn’t have opportunities, with a number of key data points being released. It started with the latest Claimant Count Change figures out Tuesday morning, with initial forecasts coming in at 15.2k and final figures released at 14.1k. However, this was before the drop against the Dollar following CPI and caused little movement. Next up, it was the UK’s turn to release its latest CPI figures early Wednesday morning. We were expecting to see a slight uptick in headline inflation, with forecasts coming in at 4.1%, up from 4% in the previous reading. This did not end up being the case, with final figures showing that CPI y/y had remained in line with the previous reading. This saw a sharp sell-off of the Pound, particularly against the Euro, with the Pound dropping around 0.5%. Disappointingly, we had seen the Pound trading at its highest level since August 2022 prior to this result.
Thursday saw major releases in both the UK and the US. First up was GDP in the UK, which came in slightly better than forecast at -0.1% (forecast to be -0.2%); however, the main talking point was the UK finally entering a nationwide recognized technical recession, with headlines across the country announcing this change in rhetoric. Later in the day, the US released its latest retail sales figures, with both readings coming in considerably worse than forecast. However, this did little to bolster the Pound, with the news from earlier in the day holding the Pound at bay.
That was true this morning as well, with UK retail sales coming in considerably better than anticipated at 3.4%, a massive increase, especially considering forecasts had it coming in at 1.5%. However, perhaps due to it being massively bolstered by Christmas sales and also an overlay from the recession news yesterday, the Pound actually saw a decrease in value against the Euro and US Dollar.
As we look ahead, next week will begin with a bank holiday in the US for Presidents Day, and with little else out, it is unlikely we will see too much movement before Thursday, when we will observe the latest US, UK, and Eurozone PMI figures. I would expect that without any major outside influence, we will see a much quieter week than this one.
