There are few signs in the last week’s trading that the British Pound’s home economy has been on something of a roller-coaster ride in terms of what the data are telling us.
It’s only about a week ago that official growth figures unexpectedly showed that the United Kingdom entered a technical recession in the final three months of 2023. And already there seems a good chance that it’s going to be an extremely mild recession by historical standards. Indeed, it might already be over.
Bank of England Governor Andrew Bailey suggested as much in his testimony before Parliament on February 20, and the most recent of the closely-watched purchasing Managers Index series found private-sector optimism at a two-year high.
So, the Bank of England has a fine balancing act to pull off this year, to nurture recovery while snuffing out stubborn inflation at the same time. Sterling markets still think on balance that its next move on interest rate will be a reduction from the current, sixteen-year peaks. However, that might not come for some time, Bailey declared himself ‘comfortable’ with the markets’ view on rate cuts, but when they arrive, and how deep they’ll be, remain open questions.
That’s the domestic backdrop Sterling is likely to be left with as a new week gets underway.
There’s very little on the local data slate likely to move the Pound this week, and the Bank of England won’t set rates again until late March.
This is likely to leave GBP/USD very much at the mercy of what happens on the USD side of things, and there is more scope for movement there. First-tier US numbers on tap in the coming days include durable goods orders, a second official look at Gross Domestic Product for the end of last year and, perhaps most crucially, the latest inflation roundup from the Personal Consumption and Expenditure series.
The core inflation rate here was an annualized 2.9% last time. The market is looking for gradual reductions which would, presumably, keep the prospect of lower US rates very much alive. On the assumption that this week’s US figures won’t hit this theory too hard, it’s a bullish call for the Pound this week.
