ExchangeRates.org.uk – Inflation data and employment figures are due for release this week. These have always been important, but BoE Govenor Bailey’s recent comments have made them even more so. Weak data could open up the door for more cuts as the BoE is set to become more “activist” with its easing cycle. Monday’s session has been relatively quiet in the absence of market-moving weekend news.
The US bond market is also closed for Columbus Day. Focus will be on corporate earnings with many of the big banks due to release earnings on Tuesday ahead of the open. Scheduled US data is of low importance until Thursday when retail sales and unemployment claims will be released. Thursday is also the day of the ECB meeting and there is still plenty indecision on whether the central bank will deliver its third cut. Until then, the major releases revolve around the UK as employment data is due for release on Tuesday and CPI on Wednesday. Given the signals coming from BoE Governor Bailey, these could prompt a flurry of rate cuts and the pound looks vulnerable to a pullback.
UK Data in Focus
At face value, UK data this week shouldn’t be hugely important. is expected to drop from 2.2% to 1.9%, with Core readings expected to drop from 3.6% to 3.4%. Even if the headline number fails to meet expectations, hovering around the 2% level is no bad thing as it is bang on the BoE’s inflation target. If the BoE really wanted to cut, there is nothing really standing in their way, although they would clearly prefer to see services inflation moderate and wage growth drop back to average levels. recently said the bank could become a ‘bit more activist’ should inflation data weaken further. This initially weakened the pound but it recovered most of the way back again. While the reaction has been muted, it does mean this week’s moves could be amplified.
Wednesday’s CPI will be key as any good news on services inflation will open the door for that more “activist” approach to catch up the likes of the and who have cut 50bps and are expected to cut again. Services inflation has a consensus estimate of 5.2% and if this is in-line or even lower, then the pound could drop sharply as more cuts are price in. On the other side, the BoE’s Chief Economist, Huw Pill, has again taken a more hawkish stance and cautioned against more early cuts. There is obviously some concern about some of the elevated figures and there does seem no pressing need to cut rapidly.
The economy is holding up well and employment figures are steady. Thankfully for the BoE, the data has not given them the same problems as the Fed and ECB face. Over in the US, the labour market is causing concern, and while the Fed did not admit it, the 50bps cut in September was a way of trying to stabilize it. Over in the EU, weak PMIs and growth figures have continued for most of the year, with Germany stagnating due to its weak manufacturing sector. The ECB are under pressure to cut more. Should Tuesday’s employment data show some serious signs of weakening, the situation could change quickly and the BoE will likely cut faster than the market currently expects. That could push above 0.84 again towards 0.85 resistance. is holding above 1.30 but weak data from either CPI or employment would likely break this figure and open up a large move lower.
This content was originally published on ExchangeRates.org.uk
