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GBP - Is this Sterling’s calm before the storm?

During Friday trading, UK importers could finally breathe a sigh of relief as sterling stabilised to a degree. There were no major data releases on the last day of the week. Bank of England Governor Mark Carney spoke in Nottingham but gave little away in terms of the Bank’s future policy moves, so sterling traded within a narrow band.

Carney commented on one of the hot topics of the week, namely food prices rising due to sterling weakness, and said that the Bank is “willing to tolerate a bit of an overshoot [on inflation] to avoid unnecessary unemployment.” He continued: “We moved interest rates down to support the economy.”

By some this is seen as a sign that interest rates will remain at record lows despite inflation picking up and hitting the 2% target.

In other news last week, Prime Minister Theresa May selected a group of 12 ministers to negotiate the UK’s EU exit. The group includes all six members of the Cabinet who campaigned to leave the EU at the June referendum, including Foreign Secretary Boris Johnson and International Trade Secretary Liam Fox. On Friday, May ruled out a second referendum.

The coming week could be crucial for Sterling as a raft of key data is set for release and markets will be looking for clues on whether another interest rate cut is in store.

On Tuesday, the keenly watched inflation data will be released, which is expected to push higher given sterling’s demise. On Wednesday, unemployment data and wage growth, an indication of the health of the economy, will be announced.

The all-important retail sales figures are set for release on Thursday. This is another key data point because consumer spending makes up roughly 70% of GDP.

By Ricky Bean

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