Welcome to another trading week, folks! We’ve got tons of tier 1 forex reports coming our way over the next couple of days, including three releases from the U.K. that could trigger extra volatility for the major pound pairs:
CPI (Jan. 19, 9:30 am GMT)
- Headline CPI expected to remain at 0.1% in December
- Core CPI expected to remain at 1.2%
Last month the consumer price index (CPI) report surprised to the upside when it printed a 0.1% growth – its first reading above zero in four months – while core inflation inched from 1.1% to 1.2%. Still a long way from the Bank of England’s (BOE) targets, but not a bad development either.
If the CPI doesn’t miss its estimates, then the bulls might have more to celebrate. BOE Governor Mark Carney and his gang had already started the drumbeats when they hinted that low inflation could actually help the economy by giving consumers more spending power and recognized the decline in oil prices as temporary. Right now the BOE is expecting inflation to remain below 1.0% until the second half of the year and reach its 2.0% targets by late 2017.
Employment numbers (Jan. 20, 9:30 am GMT)
- Unemployment rate expected to remain at 5.2%
- Claimant count expected to rise from 3,900 to 4,100 in December
- Average weekly earnings (excluding bonuses) a.k.a. “underlying wage growth” to slip from 2.0% to 1.9% in the quarter to November
- Average weekly earnings (including bonuses) to drop from 2.4% to 2.1% in the quarter to November
Aside from inflation, muted wage growth is one of the reasons why the BOE isn’t in any hurry to raise its interest rates. In fact, Monetary Policy Committee (MPC) member Minouche Shafik has recently stated that she won’t vote for a rate hike until wage growth has hit 2% – 3% above productivity levels. Yipes!
Market players are concerned that wages won’t improve in pace with inflation. Remember that low inflation is currently keeping the English get their meat pies and ale fix, but this won’t be the case for long if consumer prices rise faster than the workers’ wages. Keep close tabs on the average weekly earnings numbers, as you can bet your next pint that the BOE members would be closely monitoring them, too.
Retail sales (Jan. 22, 9:30 am GMT)
- Headline retail sales expected to show 0.1% decline vs. 1.7% uptick in November
- Core retail sales estimated to slow down from 1.7% to 0.3% in December
The BOE might not have expressed outright concerns over consumer purchases, but the retail sales report could still knock the socks off forex traders this week. For one thing, analysts are expecting worse numbers this time compared to the previous month’s readings.
A recent survey by the British Retail Consortium (BRC) reflected that December was a weak month for retailers despite the rise of real incomes (thanks low inflation!) and consumer sentiment. Not only that, but we might also see a bit of adjustment from November’s significantly better-than-expected figures. In any case, traders aren’t expecting to see a holiday high from December’s retail sales figures. You’ve been warned!
With 2 out of 3 reports listed above under the BOE’s spotlight, we might see more volatility than usual for the major pound pairs. Which economic report do you think will have the most impact on the pound this week? Will you trade any of them?