Last Week’s UK Economic News Review

Sterling declined against both the U.S. Dollar and the Euro, as the U.S. Federal Reserve raised interest rates for the first time in nine years, and both the Eurozone and the UK reported mixed economic numbers.

The week began with MPC member Nemat Shafik stating on Monday that, “I will wait until I am convinced that wage growth will be sustained at a level consistent with inflation returning to target before voting for an increase. In that sense, I will proceed with caution, but once I am convinced, absent further shocks, I can see bank rate rising more quickly than the path implied by the market curve at the time of the last Inflation Report”.

Tuesday saw UK CPI come out in line with expectations at +0.1% y/y. On Wednesday, UK Claimant Count Change showed an increase of +3.9K, significantly higher than the +0.9K that was expected. Nevertheless, the previous number was downwardly revised from +3.3K to +0.2K. In addition, the UK Unemployment Rate declined to 5.2% from 5.3%, and the Average Earnings Index increased +2.4% 3m/y versus +2.5% anticipated.

The U.S. economic calendar’s highlight last week was the Federal Reserve’s +25 bps hike of the Fed Funds Rate, the central bank’s first rate hike since 2006. The FOMC Statement noted that, “Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.”

The Euro continued gaining against Sterling after German ZEW Economic Sentiment printed at 16.1 compared to an expected 15.2. In addition, French Flash Manufacturing PMI printed at 51.6 versus 50.6 expected and German Flash Manufacturing PMI printed at 53.0, in line with expectations.

Overall, GBP/USD began the week at 1.5191 and concluded the week -2.15% lower at 1.4864, while EUR/GBP increased from 0.7221 to close the week +0.8% higher at 0.7281.

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

GBP: The economic calendar for the United Kingdom quiets down considerably this coming week due to the holiday season. The week’s highlights only include Tuesday’s Public Sector Net Borrowing and Current Account releases expected to come out at 11.9B and 0.5% respectively, in addition to Final GDP due out on Wednesday at 0.5%. Also, Friday is a UK Bank Holiday.

USD: The economic calendar for the United States remains active this coming week after last week’s key Fed Funds Rate rise. Monday offers nothing of note, so Tuesday will start the week’s highlights with Final GDP and Existing Home Sales due out at 1.9% and 5.32M respectively. Wednesday will be especially busy, offering Durable Goods Orders and Core Durable Goods Orders due out at -0.6% and 0.1%, in addition to the Core PCE Price Index expected at 0.1%, Personal Spending for which the market is anticipating a 0.3% result, New Home Sales due out at 507K, the Revised University of Michigan Consumer Sentiment survey expected to come in at 92.1 and Crude Oil Inventories for which the last result was 4.8M. On Thursday, Weekly Initial Jobless Claims is expected to print at 270K, and Friday is a U.S. Bank Holiday.

EUR: The Eurozone’s economic calendar is exceptionally quiet this coming week, with its only highlight being the Spanish Parliamentary Election results due out on Sunday. Also, Thursday will be a Bank Holiday in Germany, and Friday will be a Bank Holiday in Germany, France and Italy.

Sterling Technical Forecast, Spot Rates and Major Chart Points:

GBP/USD weekly forecast: lower
Resistance: 1.5026/53, 1.5158/1.5199 and 1.5239/63
Spot Rate: 1.4912
Support: 1.4852/1.4993, 1.4634 and 1.4565

EUR/GBP weekly forecast: lower
Resistance: and 0.7303/05, 0.7355/73 and 0.7394/0.7410
Spot Rate: 0.7286
Support: 0.7116/0.7249, 0.7051/79 and 0.6935/0.7013