Sterling strengthened on a trade-weighted basis during Friday, supported by some recovery in Sterling sentiment, with gains to highs above 1.7550 against the dollar shortly after the US trade data release. International considerations were still very important with high volatility in New York and Sterling weakened back to around 1.7450 against the US currency with further losses in early Europe on Monday.
There is a series of important UK data this week including inflation, unemployment and retail sales. These reports will set the tone for UK interest rate expectations and Sterling sentiment with firm data forcing a further reassessment of interest rate expectations which would underpin Sterling. The UK currency will be vulnerable if the Bank of England lowers inflation expectations and volatility is liable to remain high, especially given international uncertainties.
Wholesale prices rose 0.4% in January with a 2.9% annual increase which will maintain inflation concerns. At this stage, the domestic risks look to be neutral to slightly Sterling positive.
Analysis supplied by
FXToday
Sterling on inflation watch
Sterling on inflation watch
