Key UK data this week is likely to ensure that quantitative easing bets remain on standby as the Bank of England is expected to maintain its wait-and-see approach in its latest Minutes report. Subdued UK Retail Sales and an overshooting Consumer Price Index should be sufficient to bolster demand for Sterling.
The Pound to US Dollar exchange rate (GBP/USD) opened for the week at around 1.5354, just under half a cent below last week’s 50-day high. Sterling advanced 0.25 cents higher against the Euro early Monday morning to reach 1.1725 (GBP/EUR). The Pound is trading close to all-time record lows against the Australian Dollar (GBP/AUD) and the New Zealand Dollar (GBP/NZD), whilst the Sterling to Japanese Yen exchange rate (GBP/JPY) is -2.5 cents lower than last week’s 44-month high.
It was announced earlier this morning that Rightmove UK House Prices improved by 0.4% in April. The result, which was weaker than March’s 1.2% print, yielded little market response but is the only British economic release on Monday.
At 02:30 AM on Tuesday morning the Reserve Bank of Australia is set to issue its latest policy meeting Minutes. The RBA refrained from another interest rate reduction during April as policymakers felt it necessary to monitor the Australian economy for the “expansionary effects” of previous rate cuts. Since November 2011 the Australian Central Bank has cut interest rates by 175 basis points to the current benchmark rate of 3.50%. The Minutes report is likely to feature mildly optimistic sentiment whilst leaving the door open to more potential rate reductions in the future. The more hawkish the statement reads: the more likely the Australian Dollar is to bulldoze it way to new highs against the Pound.
Inflationary data is forecast to print in Sterling’s favour on Tuesday with the UK Consumer Price Index holding firm above-target at 2.8%, which is likely to deter the BoE from further monetary loosening. The Eurozone headline inflation stat is predicted to remain below target at 1.7%, which could pile pressure on the European Central Bank to introduce a rate cut and damage demand for the Euro. The US figure is also forecast to fall, quite dramatically, from 2.0% to 1.6% due to dipping energy prices. This could persuade the Federal Reserve to continue its expansive asset purchasing target for a prolonged period of time, which would deteriorate demand for the US Dollar.
On Wednesday the UK Unemployment Rate is forecast to stay at 7.8% and the Bank of England Minutes is likely to show another vote of 6-3 against further asset purchases. If it turns out that another member of the monetary policy committee joined the dove camp at the latest meeting then it could spell trouble for Sterling; conversely if the margin of victory was more substantial for the hawks then GBP could rally.
Also on Wednesday the Bank of Canada will announce its rate decision for April. The BoC is widely expected to hold its benchmark interest rate of 1.00%, but any signs that a future rate hike is in the pipeline could send GBP/CAD spiraling downwards.
On Thursday the UK Retail Sales figure is predicted to show a slight cool down in activity from 3.3% in February to 0.9% in March. With wage growth lagging and famous high-street retailers closing down across the country, it is unlikely that the Pound will be treated to the comfort of another print in the region of 3.3%. That said 0.9% should be enough to push British GDP towards slender growth in the first quarter.
On Friday the final piece of major economic data for the week is forecast to show that Canadian Consumer Prices grew by a modest 0.2% in March, far worse than February’s 1.2% rise. The soft print is likely to pour cold water on rate hike hopes and could give GBP/CAD a positive boost.
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