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The impact of Brexit: How could this week’s data impact Sterling?

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The impact of Brexit: How could this week’s data impact Sterling?
  • UK GDP figures
  • Fed’s Interest rate decision
  • Euro GDP and Consumer Price figures on Friday

consumer-price-indexA month on from the UK’s historic vote to leave the EU, the markets have been waiting with anticipation for the first set of economic releases. From what little we’ve learnt about how the markets are reacting to releases, positive data has done very little to help Sterling whilst data supporting a negative trend panics the markets.

Any signs of economic slowdown are not taken lightly in an environment where the risks are amplified.

A number of key releases this week could rattle the markets and put the Pound under further pressure, if you’re looking to buy US Dollars or Euros, understanding these releases could save you financially.

UK GDP figures and FED interest rate hike

Wednesday’s GDP figures, although preliminary, will be one of the first set of releases post-Brexit. Last week’s retail sales and preliminary CPI figures were the first set of negative releases for the UK with Brexit taking the blame. Last week’s figures will likely impact Wednesday’s GDP figures and I therefore could expect Sterling to take a hit on the announcement.

Shortly after the release Janet Yellen of the Fed will announce her latest interest rate decision. Whilst the markets have now priced in a hike in 2017, there are a number of reasons to suggest the US are ready for a hike. Lower unemployment rates and strong manufacturing output have boosted confidence in a rate hike although Yellen will likely proceed with caution given the Brexit outcome.

If Yellen does trigger a rate hike, The US Dollar will likely soar pushing GBPUSD exchange rates below the 1.30 mark.

What impact is Brexit having on the Eurozone?

Mario Draghi remains confident and reassuring in keeping the Eurozone stable, although it’s possible his comments will be put to the test later this week. Friday sees the release of Euro GDP and Consumer price figures which will be early indicators for how the single economy is performing post-Brexit.

Draghi has already stated that it is too early to decide whether the Eurozone need to act in the wake of Brexit, but Friday’s releases could force the ECB to take further action. Given that interest rates are at 0% already and €80bn in QE exists, a different approach to stimulating the economy may need to be looked at.

In any event, I expect Pound Sterling to fall mid-week and regain some of its losses towards Friday afternoon.