Last Week’s UK Economic News Review

Sterling gained ground against both the U.S. Dollar and the Euro last week, reversing its three week slide which began after the Brexit vote on June 23rd. The increase in the value of Sterling was in large part due to an improvement in sentiment after the Tories selected Theresa May as the UK’s next Prime Minister, and the Bank of England’s MPC unexpectedly decided to leave interest rates and stimulus unchanged at their latest meeting on July 14th. Prior to that announcement, the market’s consensus was for the central bank to cut the Official Bank Rate by 25 basis points to 0.25%. 

The UK economic calendar was limited to BOE Governor Carney speaking before Parliament on Tuesday. Referring to Sterling’s role in the post-Brexit adjustment, he said that, “The exchange rate move can help with that adjustment, it can help with the relative importance of the traded sector versus the domestic or so-called non-tradable sector. Also the adjustment in the level of the currency will be a product of investor perceptions of risk.”

The BOE Credit Conditions Survey followed on Wednesday, while the week’s highlight, the Official Bank Rate Statement, Monetary Policy Summary and Official Bank Rate Votes on Thursday surprised the market, with the BOE leaving the interest rate unchanged at 0.50%. The Monetary Policy Summary noted that, “At its meeting ending on 13 July 2016, the MPC voted by majority of 8-1 to maintain Bank Rate at 0.50%, with one member voting for a cut in Bank Rate to 0.25%. The Committee voted unanimously to maintain the stock of purchased assets financed by the issuance of central bank reserves at £375 billion.  Committee members made initial assessments of the impact of the vote to leave the European Union on demand, supply and the exchange rate. In the absence of a further worsening in the trade-off between supporting growth and returning inflation to target on a sustainable basis, most members of the Committee expect monetary policy to be loosened in August.”

The U.S. economic calendar was moderately busy last week, beginning on Tuesday with JOLTS Job Openings, at 5.50M compared to 5.74M expected, Crude Oil Inventories followed on Wednesday, showing a decline of -2.5M, in line with expectations. On Thursday, PPI increased +0.5% m/m versus +0.3% expected, while Core PPI increased +0.4% compared to +0.1% expected. Thursday’s Initial Jobless Claims showed 254K claims last week compared to an expected 263K. The calendar concluded on Friday with Core CPI and CPI, both up +0.2% m/m as widely anticipated, and Core Retail Sales, which increased +0.7% m/m compared to an expectation of +0.4%, while Retail Sales increased +0.6% m/m versus +0.1% expected.

The EU economic calendar was light again last week, beginning with the Eurogroup Meetings in Brussels on Monday. Eurogroup President Jeroen Dijsselbloem noted that, “This was our first meeting since the UK referendum so when discussing the economic situation in the euro area we of course also focused on the effects of the outcome of the UK referendum, talked about market reaction, the impact in Europe and in the Eurozone in particular. Of course, there is a high degree of uncertainty at this point on what the economic impact will be, as well as what the political impact will be throughout the Eurozone area.” The calendar concluded with Friday’s release of Eurozone Final CPI, which increased by +0.1% y/y, as was widely anticipated.

Overall, GBP/USD began the week at 1.2941 and concluded the week +2.0% higher to close at, 1.3205 while EUR/GBP declined from 0.8534 to close the week -2.0% lower at 0.8363.

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

GBP: The economic calendar for the United Kingdom remains active this coming week, with key jobs data out on Wednesday. Monday offers a talk by MPC Member Weale, while Tuesday has CPI, PPI Input and the RPI due out at 0.40%, 0.90%, and 1.40% respectively, plus a talk by MPC Member Broadbent. Wednesday then features the Average Earnings Index, the Claimant Count Change, and the Unemployment Rate expected out at 2.3%, 4.1K and 5.00%. Thursday offers Retail Sales and Public Sector Net Borrowing for which the market is anticipating results of -0.40% and 9.3B. Manufacturing PMI is expected to come out at 49 on Friday to conclude the week’s highlights.

USD: The economic calendar for the United States cools down considerably this week. Monday is quiet, while Tuesday offers Building Permits and Housing Starts, which are expected to print at 1.15M and 1.17M. Wednesday’s data releases include Crude Oil Inventories that last came out at -2.5M, while Thursday has the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales expected out at 5.1, 271K and 5.48M respectively.

EUR: The Eurozone’s economic calendar warms up this coming week. Monday has nothing notable scheduled, so the week’s highlights start off on Tuesday with the German and Eurozone ZEW Economic Sentiment surveys expected out at 8.2 and 12.3. After a quiet Wednesday, Thursday will feature the ECB’s Minimum Bid Rate Decision and the associated ECB Press Conference where the central bank is expected to leave its benchmark interest rate unchanged at 0.00%.  A busy Friday concludes the week’s highlights with French Flash Manufacturing PMI French Flash Services PMI German Flash Manufacturing PMI German Flash Services PMI EZ Flash Manufacturing PMI and EZ Flash Services PMI due out at 48.1, 49.6, 53.6, 53.3, 52.1 and 52.3 respectively.

Sterling Technical Forecast, Spot Rates and Major Chart Points:

GBP/USD weekly forecast: higher
Resistance: 1.3204/27, 1.3339/1.3415 and 1.3477/80.
Spot Rate: 1.3203
Support:  1.3104/19, 1.2849/79 and 1.2794.

EUR/GBP weekly forecast: lower
Resistance: 0.8378/0.8469, 0.8584/0.8637 and 0.8769/0.8814.
Spot Rate: 0.8364
Support: 0.8314, 0.8249 and 0.8177/0.8205.