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FOREX watch: UK data headlines this week’s economic newswire

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FOREX watch: UK data headlines this week’s economic newswire

The UK economy is in the midst of its worst recession in decades, unable to break from the devastating effects of the 2008 financial crisis. The outlook on the UK shows tentative signs of revival, but growth remains sluggish and uncertain. After consecutive weeks of upbeat data, culminating in much higher than expected retail sales, growing consumer confidence and strong services sector growth, the UK economy took a step back last week after official data showed steep declines in industrial and manufacturing production. In response, the GBPUSD sunk to three-year lows. The week ahead will be critical for pound sterling, as a series of economic reports will determine its fate over the near term.

Action picks up on Tuesday with the Consumer Price Index, a key indicator of inflation. UK households have struggled with inflation for much of 2013, and although a higher reading is usually seen as supportive of the pound, it’s likely to put more pressure on household spending. If CPI rises more than 3 percent, the BoE will address the markets with an official Inflation Letter.

On Wednesday National Statistics will release official employment figures. Economists anticipate the UK economy to have lost more jobs in June, although not enough to change to unemployment rate, which is expected to hold steady at 7.8 percent. UK employment has gradually improved over the past 18-months, after peaking at 8.4 percent in October 2011.

The most highly anticipated release also comes way on Wednesday, when the Bank of England releases the minutes of its latest interest rate decision—the first with new Governor Mark Carney. The minutes will provide details regarding the latest policy decision, as well as differences of view that Governor Carney may have had with his committee members. A dovish reading will send pound sterling toward further declines ahead of Mark Carney’s August monetary action pan.

On Thursday the UK will also release official data on retail sales, a key indicator of consumer spending. Economists expect retail sales for the year-ended in June to jump 1.7 percent, lower than the May report (1.9 percent).

Recovery appears to be in sight for the UK economy. Despite weak 2013 Q1 growth, GDP is likely to pick up in the second quarter. However, fiscal austerity remains a risk, and when combined with high inflation, could hit household spending much harder than expected.

Pound trading was very light on Monday, as the markets anticipate Tuesday’s releases. GBPUSD was largely unchanged at 1.5102 (-0.05 percent), as was EUR/GBP, which closed New York trade at 0.8652 (-0.02 percent).

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