UK data dump comes ahead of next week’s BoE meeting
It’s the middle of the month which means we get a smorgasbord of UK data releases this week. Sterling was little impacted by the softer than expected GDP data last Friday. There was also not a lot of volatility around Governor Bailey’s comments which sounded cautiously optimistic. He revealed policymakers were evenly split in August on whether the minimum conditions for a rate hike had already been met or not.
Positive UK jobs data
With next Thursday’s Bank of England meeting coming into focus, the higher-frequency data will be on traders’ radars. This morning’s employment figures showed the jobless rate falling to 4.6% as expected from 4.7% in June. Employment conditions are at least moving back to pre-pandemic conditions with this data incorporating a partial tapering of the furlough scheme, which ends completely later this month. Many analysts are waiting for that data to give us a real picture of the employment situation.
Wage growth has cooled off a little bit but still remains high with the ONS noting that base effects are still at play, so some caution is advised when trying to interpret the numbers.
Rest of the UK data should be supportive
Wednesday’s inflation data is forecast to jump higher with the headline surging 2.9% from 2.0% in June and the core to 3.0% from 1.8%. However, this is primarily due to base effects and supply chain constraints which should ease in the medium-term. The short-term swings in CPI should play a secondary role in driving the BoE’s decisions compared to longer-term projections.
Retail sales data will also be worth watching, after disappointing in July due to the partial payback for the boost in sales in June due to the European Football Championships. Annual growth is expected to remain steady at 2.4% with spending on “staycation” fuel buying and clothing as workers return to offices both helping.
GBP upward momentum is slow
With the domestic recovery story intact, markets appear reluctant to support the Bank of England’s upbeat stance on the economic outlook. Rate increases will be gradual and modest, but the BoE will still be one of the first major central banks to hike. There may be better upside trading opportunities against the more dovish central bank currencies like the EUR and JPY.
With regards to cable, we’ve seen a relatively narrow channel since the start of the month between 1.3750 and 1.39. Trendline resistance from the June highs looks to have been broken with both the 50-day and 200-day moving averages now supporting prices around 1.38. Buyers this morning are now looking to test the upper band. The 100-day moving average sits just above 1.39 and will act as additional near-term resistance.