GBP/USD Weekly Forecast – 12 September

Friday, Sep 09 2016

Events that marked the week:

From the UK, on Monday, Services PMI figures were released. The latest data also signalled rising inflationary pressure linked to the weak pound. The Business Activity Index rebounded to 52.9 in August, from 47.4 in July, signalling a rise in UK services output. The month-on-month gain in the index, at 5.5 points, was the largest observed over the 20-year survey history, following a record drop of 4.9 points in July. The rate of expansion in the latest period was the fastest since May, but weaker than the long-run survey average.

Wednesday was marked by Industrial Production figures. Comparing July 2016 with June 2016, production output is estimated to have increased by 0.1%. Manufacturing was the only sector to contract from June 2016, falling by 0.9% with the largest contribution from pharmaceuticals. However, this was offset by growth in the other three sectors, particularly mining & quarrying, which increased by 4.7%.

However, the focus of the session was on Inflation Report Hearings. Governor Mark Carney defended the Bank of England's major stimulus package of last month as signs grow that the economy has held up better than expected to the initial shock of Britain's vote in June to leave the European Union. Carney also told lawmakers on Tuesday he was "absolutely serene" about the way he warned of a possible Brexit hit to the economy before the referendum, locking horns again with supporters of the victorious "Leave" campaign.

Data has suggested Britain's economy did not suffer the kind of devastating impact forecast by some "Remain" supporters in advance of the vote, although economists say it is heading for a sharp slowdown. Carney fended off criticism from some lawmakers that the Bank moved too aggressively to help Britain's economy through the Brexit shock in early August when it cut interest rates, expanded its bond-buying programme and took other measures to ease lending. "(I) absolutely feel comfortable with the decision I supported and that the committee took in August to supply monetary policy stimulus," he said.

On Friday only UK Trade Balance figures were published. The UK’s deficit on trade in goods and services was estimated to have been £4.5 billion in July 2016, a narrowing of £1.1 billion from June 2016. Exports increased by £0.8 billion and imports decreased by £0.3 billion. The deficit on trade in goods was £11.8 billion in July 2016, narrowing by £1.2 billion from June 2016. This narrowing reflected an increase in exports of £0.8 billion to £24.8 billion and a decrease in imports of £0.3 billion to £36.6 billion.

This week markets will be looking at:

CPI/PPI Input (Tuesday 10:30)

Claimant Count Change/Unemployment Rate (Wednesday 10:30)

Retail Sales (Thursday 10:30)

Official Bank Rate/ Monetary Policy Summary (Thursday 13:00)

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