British pound sterling: Currency markets will be watching this week's data closely, employment data may weigh on GBP warns analyst

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Published on Monday, 13 August 2012 09:16

Written by Sam Coventry

The pound sterling (Currency:GBP) has started the week in a better mood after the positive surprises in the recent Quarterly Inflation Report and manufacturing production data.

That said, the euro is looking to recover lost ground, the pound euro exchange rate is 0.18 pct in the red at 1.2745.

The pound dollar exchange rate is 0.14 pct lower at 1.5666.

The pound Australian dollar exchange rate is 0.19 pct up at 1.4867.

For sterling it is a busy week ahead in terms of UK data with CPI (Tuesday), MPC minutes and employment data (Wednesday) and retail sales (Thursday).


"Consistent with disappointing Q2 preliminary GDP, our UK data trend index fell significantly into negative territory in May and yet to gain upward momentum. Our UK economists look for CPI of 2.3% y/y (cf. 2.3%), unemployment change of 10.5K (cf. 6.0K), headline retail sales of -0.1% m/m (cf. -0.1%)," says a weekly FX note from Barclays.

Barclays note that the pound euro exchange rate has become more sensitive to relative data surprises between euro area and UK lately.

A modest negative surprise is expected from unemployment change in according to Barclays this may weigh on GBP.

"As for the Minutes, we expect the MPC to have voted unanimously to keep policy rate unchanged at 0.5% and QE at GBP 375bn in line with consensus," say analyts.

Meanwhile, the broader market appears to be losing steam, and this could see currencies resorting to the usual risk-on / risk-off play.

"Last week was generally positive for risky assets but the technical breach in equities and commodities that we mentioned last week never gave any strong momentum to the upside. This increases the probability that already this week the market will lose steam," note Jyske Bank.

Meanwhile Deutsche Bank have warned that the GBP cannot afford to appreciate against the EUR any further. A note from Alan Ruskin at Deutsche Bank says:

"By most measures the UK economy is severely under-performing the US, and cannot afford any further meaningful currency appreciation versus
the EUR.  This was underscored by some very poor trade data for June, that may be unreliable month to month, but have been remarkably slow to respond to past GBP weakness."