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Market Update

The GBP was under great pressure last week leading on from the Bank of England’s decision to keep interest rates on hold the previous week. The prior weeks before the decision, Sterling had gained on strong market expectations of an interest rate hike which have now been clawed back.

A bout of economic releases, for the UK this week, will give us an insight as to whether keeping rates on hold was the right move. Employment change and unemployment rate will be released on Tuesday – both are expected to come out stronger to support the GBP. One of the key reasons interest rates were kept on hold is due to the end of Furlough Scheme in September and uncertainties as to whether Employment figures would be able to sustain a hike. Should these releases show a stronger case for employment; it may tee up the Bank of England’s case to raise rates in December. On the scenario of a weaker result, the Bank of England may continue to hold off on raising rates this side of the year.

On Wednesday, the Inflation Rate for the UK will be closely watched. Rising inflation has been a global concern with natural gas and oil prices shooting up. Both core inflation rate and inflation rate year-on-year are forecasted to come out higher than previous. A higher inflation reading is likely to strengthen the Pound and again reiterate that the UK is ready for an interest rate hike. Should the inflation readings not meet market expectations and come out lower; this will reinforce the Banks decision not to raise rates and continue to monitor in the coming months before taking a decision to raise rates.

Retails sales for the UK will also have an impact this week as to the direction of the GBP this week. A jump in retail sales will show that consumers are still spending and have disposable income. As we approach Christmas, a time of the year where spending and retail sales is generally on the up, this will give us a clearer indication as to whether an interest rate hike is affordable.

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