Last Week’s UK Economic News Review

Sterling reversed direction last week, losing ground against both the U.S. Dollar and the Euro as the BOE left interest rates and stimulus measures unchanged, the FOMC left interest rates unchanged, and the Eurozone posted mostly better than expected economic data. The UK economic calendar was moderately busy last week, beginning on Tuesday with Net Lending to Individuals, which fell to 4.8B from 5.1B with an expectation of 5.3B. On Wednesday, Manufacturing PMI printed at 55.9, which was in line with expectations. Thursday had Construction PMI, which showed a disappointing reading of 52.2 compared to the expectation of a 53.9 print.

Thursday also had the BOE Official Bank Rate, which was left at 0.25% and the Asset Purchase Facility at 435B by unanimous MPC votes and both as widely anticipated. In addition to the rate decision, the BOE issued an Inflation Report, which noted that, “The MPC has long emphasized that the effects of the process of leaving the EU on inflation would be the product of its impact on demand, supply and the exchange rate. And it has consistently stressed that as a result, the implications for monetary policy would not be automatic. During these exceptional circumstances, the MPC is required by its remit to balance a period of above-target inflation with a period of weaker growth.”

The Monetary Policy Summary stated that, “The value of sterling remains 18% below its peak in November 2015, reflecting investors’ perceptions that a lower real exchange rate will be required following the UK’s withdrawal from the EU.  Over the next few years, a consequence of weaker sterling is that the higher imported costs resulting from it will boost consumer prices and cause inflation to overshoot the 2% target.” The week concluded with Friday’s release of Services PMI, which showed a reading of 54.5 which failed to meet market expectations of a 55.8 print. 

The U.S. economic calendar was busy last week, beginning on Tuesday with CB Consumer Confidence, which printed at 111.8, missing the market consensus of 112.6. Wednesday had ADP Non-Farm Employment Change, with +246K compared to an expectation of +165K, while ISM Manufacturing PMI printed at 56.0 compared to an expected reading of 55.0.

Also on Wednesday, the FOMC left the Fed Funds Rate unchanged at 0.75% as was widely anticipated. In the FOMC’s rate statement, the FOMC noted that, ““The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.”

Thursday had Weekly Initial Jobless Claims, which declined to 246K in its latest week compared to an expected 251K. On Friday, Non-Farm Employment Change showed +227K new jobs, easily beating the market consensus of +170K; nevertheless, Average Hourly Earnings increased only +0.1% compared to an expectation of +0.3%, while the U.S. Unemployment Rate edged up to 4.8% from 4.7%. Finally, ISM Non-Manufacturing PMI printed at 56.5 versus an expected reading of 57.0. 

The Eurozone economic calendar was moderately busy last week, beginning on Monday with German Preliminary CPI, which declined by -0.6% m/m versus -0.5% anticipated. Tuesday had EZ CPI Flash Estimate, which increased by +1.8% y/y, beating market expectations of +1.5%, while EZ Preliminary Flash GDP increased by +0.5% q/q versus +0.4% that was expected. On Wednesday, Spanish Manufacturing PMI printed at 55.6 compared to a market consensus of a 55.1 print. The week concluded with a speech by ECB President Draghi, who said that, “There are some today who believe that Europe would be better off if we did not have the single currency and could devalue our exchange rates instead. But as we have seen, countries that have implemented reforms do not depend on a flexible exchange rate to achieve sustainable growth.”

Overall, GBP/USD began the week at 1.2579 and concluded the week -0.8% lower to close at 1.2478, while EUR/GBP opened at 0.8506 and closed the week +1.5% higher at 0.8636.

Key UK, U.S. and Eurozone Economic Data Releases for the Coming Week

GBP: The economic calendar for the United Kingdom cools down considerably this coming week. Tuesday features the Halifax HPI for which a 0.2% result is anticipated, while Friday has Manufacturing Production and the Goods Trade Balance due out at 0.3% and -11.5B respectively.

USD: The economic calendar for the United States cools down a bit this coming week. After a quiet Monday, Tuesday has the Trade Balance and JOLTS Job Openings due out at -45.0B and 5.56M respectively, while Mortgage Delinquencies is expected out from the 7th to the 12th of February at 4.52%. Wednesday then features the release of Crude Oil Inventories for which the last result was 6.5M. On Thursday, Weekly Initial Jobless Claims are due out at 249K. Friday finishes off the week with Import Prices and the Preliminary University of Michigan Consumer Sentiment survey that are expected to print at 0.4% and 97.9 respectively. Also, FOMC Member Fischer will talk on Saturday.

EUR: The Eurozone’s economic calendar will be very quiet this coming week, with the only highlights being German Factory Orders due out at 0.6% on Monday, and the EU Economic Forecasts tentatively scheduled for release on Wednesday.

Sterling Technical Forecast, Spot Rates and Major Chart Points:

GBP/USD weekly forecast: lower
Resistance: 1.2511/56, 1.2672/73 and 1.2727/90.
Spot Rate: 1.2483
Support:  1.2451/81, 1.2387/1.2411 and 1.2081/1.2199.

EUR/GBP weekly forecast: higher
Resistance: 0.8525/71, 0.8609/0.8762 and 0.8851/80.
Spot Rate: 0.8633
Support:  0.8492, 0.8449/69 and 0.8299/0.8330.