GBP

Sterling was down for much of last week and was one of the worst performing currencies, but still managed to gain on Friday against the euro.

Last week’s comments from the European Central Bank (ECB) confirming inflationary rises as transitory, and that they are in no rush to taper their current stimulus, means the rate increase is unlikely until at least mid 2023. This should see the pound supported.

Inflation came in modestly higher than the Bank of England’s forecast for August, and is expected to rise towards a peak of around 4% later this year. At the same time, activity data over the summer months has disappointed including monthly GDP growth for July and retail sales for August.

The market appears to be pricing in a rate hike from the BoE for early 2022, but the UK economy continues to splutter in its recovery from the pandemic. This was outlined by Friday retail sales figures that revealed a second consecutive fall in sales for August.

The BoE’s update is the highlight of the week for the pound. Although before then, IHS Markit PMI surveys for the services and manufacturing industries will be released in the morning on the same day and will likely be watched closely by the market for clues on the pace of the recovery in September.

The week ahead is busy with the US FOMC rate decision, economic projections and press conference all being scrutinised for hints on whether the Fed will look to taper this year. Thursday will also see Euro PMI, German PMI, US Unemployment claims, US Flash manufacturing PMI and Flash Services PMI announcements.

Key announcements

German PPI- M/M reading 1.5% forecast 0.8%.