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Currency research

Currency research

Information and analysis to help you stay up to date with the foreign exchange markets.

Inflation and retail sales in focus amid Brexit backdrop

Mon 17 September 2018

The week ahead:

  • UK consumer price inflation data (Wednesday, 9.30am)
  • UK retail sales data (Thursday, 9.30am)
  • Euro zone purchasing managers’ survey data (Friday, 9.00am)

Highlights from last week:

  • Bank of England keeps interest rates at 0.75% in unanimous vote
  • European Central Bank holds interest rates at record lows
  • US dollar slips as US inflation data slows in August

The Week Ahead: UK inflation and retail sales in focus amid Brexit backdrop

Against the backdrop of continuing Brexit-related headlines which are driving sterling’s direction, there are also several important domestic data releases in the coming week.

August’s UK inflation figures will be in focus at 9.30am on Wednesday. Inflation picked up to 2.5% in July and is expected to remain above the Bank of England’s 2% target in the near term, although markets remain sceptical that the central bank will opt to lift interest rates higher anytime soon. Thursday’s retail sales data (9.30am) will put the spotlight on the health of UK consumers. There are hopes that recent signs of faster wage growth and historically low unemployment levels can support retail spending.

Thursday could be a key day for Brexit developments, with the latest EU summit expected to provide Theresa May an opportunity to address other EU leaders on her Brexit proposals.

The US economic schedule this week is relatively quiet ahead of the Federal Reserve’s interest rate policy meeting later this month. Releases will include updates on housing market trends in the form of housing construction starts data (Wednesday, 1.30pm) and existing home sales figures (Thursday, 3.00pm). September’s purchasing mangers’ survey data covering manufacturing and services sector activity will round the week off on Friday at 2.45pm.

Purchasing managers’ survey data (Friday, 9.00am) will also be one of the highlights on the euro zone calendar, providing a gauge of the strength of manufacturing and services sector activity across the region this month.

View UK, US and euro zone announcements with our economic calendar

Other key data releases:

Reserve Bank of Australia policy meeting minutes (Tuesday, 2.30am)

Bank of Japan interest rate decision and policy statement (Wednesday, 3.00am)

New Zealand Gross Domestic Product data (Wednesday, 11:45pm)

Swiss National Bank interest rate decision (Thursday, 8.30am)

Canadian retail sales data and consumer price inflation data (both Friday, 1.30pm)

Last week recap - Bank of England leaves policy unchanged

The Bank of England’s interest rate setting committee unanimously decided to keep interest rates at 0.75% on Thursday. Policymakers reiterated that future moves are likely to be at a gradual pace, with August’s 0.25% rise having taken interest rates to their highest levels since 2009. Absent any significant surprises, the pound was little changed against the euro after the announcement, with a telephone conversion of £10,000 through our Currency Service shortly after the decision purchasing €11,089.

Earlier news that Mark Carney will extend his role at the helm of the Bank of England until January 2020 had little impact on sterling, with current attentions focusing on the more immediate issue of whether or not a Brexit agreement will be reached. The pound had gained some ground against the euro early last week amid hopes a Brexit deal could be reached by November. Comments from the EU’s chief negotiator, Michel Barnier, that an agreement within six to eight weeks was realistic provided the latest reason for optimism. Reports suggested EU leaders could schedule a special Brexit summit in mid-November to try to ratify Brexit terms.

European Central Bank keeps interest rates on hold

The European Central Bank (ECB) also kept interest rates unchanged last week as expected. The ECB will keep interest rates at record low levels through to at least next summer. It also confirmed its plans to end its monthly quantitative easing measures at the end of this year subject to incoming data evolving as anticipated. The policy announcements met a muted response from the euro though on Thursday afternoon.

Dollar slips as US inflation slows in August

US inflation came in lower than expected in August, with the annual rate slipping from 2.9% to 2.7% largely as result of slowing energy price rises. This is still well above the Federal Reserve’s 2% inflation objective, suggesting that policymakers are likely to continue to gradually lift interest rates in response to strong economic growth and a robust employment market. Sterling climbed to one-month highs against the US dollar after the release, with a telephone conversion of £10,000 via our telephone Currency Service purchasing US$12,933 on Thursday afternoon.

Pound reaches two-year highs against New Zealand dollar, four-month highs versus Australian dollar

The ongoing trade dispute between the US and China piled further pressure on the Australian and New Zealand dollars. The prospect of further US tariffs on Chinese goods could have a knock-on effect for the Australia and New Zealand economies given both have close ties with China. The pound climbed to two-year highs versus the New Zealand dollar, with a conversion of £10,000 via our telephone Currency Service buying NZD 19,685 by Friday afternoon. The pound rose to four-month highs against the Australian dollar, with an exchange of £10,000 via our telephone Currency Service purchasing AUD 18,007 on Friday afternoon.

Meanwhile, signs of progress in trade talks between the US and Canada helped to limit the Canadian dollar’s losses against sterling. Higher oil prices should increase Canada’s oil export revenues and were also a supporting factor for the Canadian dollar. A telephone conversion of £10,000 via our telephone Currency Service would have purchased CAD 16,846 on Friday afternoon.

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