PMIs key for GBP as calendar is light for the week ahead

The Pound started last week's session quietly, as a dearth of economic data hindered Sterling from gaining momentum.

Tuesday saw the Pound embark on a rally after the release of the most recent UK jobs report. Over the three months preceding December, wage growth decelerated by a smaller margin than anticipated, and December's unemployment rate unexpectedly dropped to 3.8%. As a result, investors scaled back their projections of interest rate cuts from the Bank of England.

Nevertheless, Wednesday saw the Pound quickly relinquishing any advances it had made after the publication of the latest UK consumer price index.

Headline and core inflation both disappointed, remaining unchanged from expectations. This reignited speculation that the Bank of England would imminently implement monetary policy loosening measures, consequently putting downward pressure on the Sterling. Subsequently, the most recent UK GDP data confirmed that the UK had officially entered a technical recession.

In Q4 2023, the UK economy contracted by 0.3% on a quarterly basis, marking the second consecutive period of decline. This added to the Pound's troubles, exerting downward pressure on the currency.

Friday saw the UK's recent retail sales data surpass forecasts significantly, revealing a 3.4% increase in sales volume. Nonetheless, since this didn't indicate substantial growth for the sector, Sterling remained relatively unchanged throughout the day's trading.

Looking forward for the Pound Sterling, the upcoming week presents a considerably lighter schedule of data releases compared to the previous week's extensive lineup.

Up next is a speech from Swati Dhingra, a Bank of England policymaker known for her dovish stance. Should she effectively advocate for looser monetary policy, the Pound might weaken as renewed expectations for interest rate cuts emerge.

Scheduled for release on Thursday are the latest preliminary PMI releases for the UK. Forecasts suggest an improvement in the UK's manufacturing sector for February, while the crucial service sector is anticipated to have remained unchanged.

This could potentially benefit GBP exchange rates, as it might indicate economic resilience within the UK's private sector, notwithstanding a recession and elevated interest rates.

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