GBP/USD Weekly Forecast – 19 December

Sunday, Dec 18 2016

Events that marked the week:

From the UK, on Tuesday, CPI and PPI figures were published. The Consumer Prices Index (CPI) rose by 1.2% in the year to November 2016, compared with a 0.9% rise in the year to October. The rate in November was the highest since October 2014, when it was 1.3%. Rises in the prices of clothing, motor fuels and a variety of recreational and cultural goods and services, most notably data processing equipment, were the main contributors to the increase in the rate. These upward pressures were partially offset by falls in air and sea fares.

Factory gate prices (output prices) for goods produced by UK manufacturers rose 2.3% in the year to November 2016, compared with an increase of 2.1% in the year to October 2016. Core factory gate prices, which exclude the more volatile food, beverage, tobacco and petroleum products, rose 2.2% in the year to November 2016, the largest increase since February 2012.

Wedesday's session was marked by UK job data. For November 2016 there were 809,000 people claiming unemployment related benefits. This was 2,400 more compared with October 2016 and 23,500 more than for a year earlier. The unemployment rate was 4.8%, down from 5.2% for a year earlier. It has not been lower since July to September 2005. The unemployment rate is the proportion of the labour force (those in work plus those unemployed) that were unemployed.

Thursday was marked by UK Retail Sales figures. In November 2016, the quantity of goods bought (volume) in the retail industry was estimated to have increased by 5.9% compared with November 2015; all store types showed growth with the largest contribution coming from non-store retailing. Compared with October 2016, the quantity bought was estimated to have increased by 0.2%; there was a mixed picture across store types with strong growth reported in some sectors. In particular, within non-food stores, feedback from household goods stores stated that “Black Friday” events had boosted sales in November.

However, the focus of the session on BoE interest rate decision. The Bank of England kept its key interest rate at a record low and noted that the pound’s recent appreciation may mean a slower pickup in inflation next year. In its last policy decision of 2016, the Monetary Policy Committee said sterling’s advance could mean “less of an overshoot” above its 2 percent goal than previously predicted. It still sees a pickup in price growth and repeated its line that it has limited tolerance for exceeding its target.

This week markets will be looking at:

Public Sector Net Borrowing (Wednesday 10:30)

Current Account (Friday 10:30)

Final GDP (Friday 10:30)

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