This week has been pivotal for the Pound, as its recent strength, buoyed by USD and EUR weakness, faced scrutiny. Here’s a breakdown of the key events and their impacts:
The week started with significant US data in the form of the latest Empire State Manufacturing Index released on Monday afternoon. Forecasts predicted an improvement from the last reading of -15.6 to -12.5. However, the final result showed an impressive improvement to -6.0. Although still below the key marker point of 0.0, it represented a considerable enhancement.
The next day was dominated by US data again, with the key release being Retail Sales. Forecasts expected core figures to rebound into positive territory after falling to -0.1% in the previous reading. This, however, did not happen, as the figure remained at -0.1%. Despite this, the Pound’s decline against the USD was only briefly halted.
Wednesday was a bank holiday in the US, shifting attention to the UK with the release of the CPI data first thing in the morning. This key piece of inflation data was particularly significant as the Bank of England was set to make its latest interest rate decision the next day. Forecasts anticipated a year-on-year figure of 2.0%, which would bring inflation back down to the Bank of England’s target rate. This turned out to be the case, although sticky services inflation went some way to supporting the Pound, limiting losses.
The following day, the Bank of England made its latest interest rate decision. A hold on rates was nearly fully priced in; however, any change to the vote split or comments by Bank of England members regarding future policy were highly scrutinized. As expected, there was no change to the rate or the vote split. However, the key takeaway was comments indicating that a few members were finely balanced between cutting and holding rates. This has increased the odds of cuts in August and September to 65% and 98%, respectively. This caused the Pound to weaken, possibly marking the beginning of the end for its recent strength. Not even the UK’s impressive retail figures released on Friday morning could help the Pound regain its lost ground.
Later today, we will see the US post its latest PMI manufacturing and services data after both the UK and Eurozone released poor results. Next week, we will see a return to US dominance data-wise, with the release of Consumer Confidence, GDP figures, unemployment figures, pending home sales, and consumer sentiment figures. With little data coming out from the UK, the recent strength of the Pound could be wiped out.
