This week the Bank of England are set to release their latest interest rate decision and quarterly inflation report. The general consensus seems to be for no change to interest rates and inflation to remain around the 3% mark, although recent forecasts from the Bank of England have suggested inflation could fall back below 3% throughout 2018.
Following the data releases Governor of the Bank of England Mark Carney will address the public and give his own outlook of the economy. Regular readers will be aware this speech has the potential to cause major exchange rate movement.
In recent months UK economic data has impressed with GDP and wage growth numbers showing an improvement. If the Governor reflects on the positive economic releases and suggests there are more to come, I expect the Pound could recover some of the losses we have seen from earlier in the week.
Michel Barnier’s warning on UK/EU trade
However, a topic that Mark Carney may have to address, which could put pressure on the Pound once more, is the ongoing Brexit negotiations. Head EU negotiator Michel Barnier issued a warning yesterday to the UK, suggesting the UK will face ‘unavoidable barriers’ if they decide to leave the customs union and single market. The reality is the UK cannot expect to trade with Europe for free but not abide by EU rulings and this is the sticking point for EU negotiators. I wouldn’t be surprised to see Mark Carney reiterate that Brexit negotiations will continue to drive UK monetary policy, which in turn will put the brakes on any substantial Sterling strength.
US stock market saw its sharpest decline in 6 years
In other news strong US employment numbers on Friday have triggered a major sell off in stock markets globally. Yesterday the US stock market saw its sharpest decline in 6 years, as investors sold off their investments and re-entered the US Dollar in anticipation that US interest rates will be hiked in March. GBP/USD exchange rates have dropped 3 cents and EUR/USD rates have also slipped by 1.5 cents since the data release on Friday. Unfortunately for the Pound the Euro is seen as a safer bet at present compared to Sterling therefore the Pound has also dropped 1 cent against the Euro following the news.