Sterling was the star of the forex show last week and could continue to stay in the spotlight with these major catalysts lined up. Read up on what each event is all about, what’s expected, and how the pound could react.
1. CPI readings (Nov. 15, 9:00 am GMT)
First up, we’ve got the October headline and core CPI readings up for release on Tuesday’s London trading session. These inflation reports are important because it’s the central bank’s mandate to maintain price stability, so any strong moves in either direction could warrant monetary policy adjustments.
So far, it’s all been good in the inflation ‘hood for the U.K. thanks to the depreciating pound. After all, a weaker domestic currency makes imported goods more expensive, thereby putting upward pressures on prices of local products as well. Strong readings could convince policymakers over at the Bank of England that additional stimulus is needed for now.
Analysts are expecting headline CPI to rise from 1.0% to 1.1% and core CPI to dip from 1.5% to 1.4%. PPI input, which measures the change in prices of raw materials purchased by manufacturers, is projected to print a 1.6% jump after showing a flat reading in the previous month. Now this provides clues on how Toblerone bars could change and more importantly, how future consumer inflation might fare.
In the previous release, both headline and core readings surpassed expectations, allowing GBP/USD to break out of its Asian session consolidation and carried on with its climb of a hundred pips or so until the middle of the U.S. session.
2. Inflation Report hearings (Nov. 15, 10:00 am GMT)
Around an hour after the inflation figures are printed, BOE Governor Carney and a handful of MPC members are scheduled to testify on their inflation outlook in front of Parliament’s Treasury Committee. This should shed more light on what the central bank has in mind when it comes to future monetary policy changes.
Dovish remarks cautioning about Brexit risks and global uncertainties *cough, Trump, cough* could remind market watchers that the BOE is open to the idea of increasing stimulus whether through rate cuts or higher asset purchases. This scenario could dampen the recent improvement in U.K. sentiment, likely forcing the British currency to return its recent gains. On the other hand, reassuring remarks from BOE officials could confirm that monetary policy will stay unchanged for much longer, possibly allowing the pound to extend its rallies from last week.
3. Employment data (Nov. 16, 9:30 am GMT)
Labor market indicators are also a huge deal for an economy because an improving jobs situation tends to inspire stronger consumer confidence and spending, not to mention that increased hiring and higher wages enable more Brits to have more moolah to spend. With that, stronger than expected employment data is often bullish for the pound while disappointing reports are usually bearish.
The claimant count change, which measures the difference in the number of folks claiming unemployment benefits from one month to the next, is expected to show a 1.9K rise in joblessness for October. This would be much larger than the previous 0.7K increase in claimants but the unemployment rate is expected to hold steady at 4.9%. Meanwhile, the average earnings index or the indicator for wage growth is expected to have held steady at 2.3% in the three-month period ending in September.
The previous jobs report printed mixed results, with a lower claimant count and lackluster wage growth. Sterling sold off upon seeing these figures and headed for its intraday lows later on in the day.
4. Retail sales (Nov. 17, 9:30 am GMT)
Lastly, the October retail sales report due on Thursday is expected to show a 0.5% increase in consumer spending, which would be much better compared to September’s flat reading. A stronger than expected reading could be enough to assure market watchers that Brits are keeping calm and carrying on with their purchases, which could be enough to shore up growth even with external economic risks.
The earlier retail sales report turned out to be a disappointment, though, as spending was flat instead of printing the projected 0.3% gain. Still, it’s worth noting that the past two reports enjoyed upward revisions so these could also impact the pound’s reaction to the release.
As always, if you’re not in the mood for additional volatility, there’s no shame in sitting on the sidelines and watching these top-tier news events unfold. Just make sure you keep tabs on how the actual figures turn out so you can use ’em to adjust your longer-term biases. Good luck!