Last week brought plenty of volatility across the markets. The most notable moves were Dollar weakness and Sterling strength, driven by an upside surprise in UK GDP figures, which came in at 0.3% versus expectations of just 0.1%. Over the weekend, however, UK fiscal concerns came back into focus, with the 30-year gilt yield spiking close to levels not seen since 1997. Despite the Bank of England cutting rates earlier this month, bond yields continue to climb — a signal that investors remain unconvinced about the UK’s fiscal outlook.
It’s important to note that Sterling’s strength is not necessarily a reflection of confidence in the UK economy. Much of the recent demand is being driven by carry traders, who are benefiting from the yield differential between Sterling and other currencies. In other words, investors are being paid to hold Sterling, rather than buying it on conviction about UK fundamentals.
Key Events This Week
Monday – Quiet Start
The week begins quietly with no major releases scheduled, allowing markets some breathing room before a busier mid-week.
Tuesday – US Housing Data
Attention turns to the U.S., with housing starts and building permits both on the docket. These indicators are closely watched as leading measures of economic health — stronger figures suggest increased construction activity and confidence in future demand. Both are expected to come in on the stronger side, which could provide near-term support for the Dollar.
Wednesday – Packed Calendar
- RBNZ Rate Decision: A 25bps cut is expected, which should weigh on the New Zealand Dollar.
- UK CPI: Inflation is expected to tick higher to 3.7%. Should this materialise, it could provide Sterling with an additional boost, particularly given last week’s stronger GDP print.
- Eurozone CPI: Forecast unchanged at 2%. A steady reading would confirm that the ECB’s battle with inflation is stabilising.
- FOMC Minutes: Investors will be looking for any hints that the Federal Reserve may consider cutting rates in September. While no major surprises are expected, any dovish signals could trigger fresh Dollar weakness.
Thursday – PMIs and Jackson Hole
- Flash PMIs: Preliminary data from Europe and the UK will be released. Expectations are for weaker numbers out of Europe and slightly stronger readings from the UK, which could help Sterling consolidate recent gains.
- US Jobless Claims: Forecast to rise, adding to concerns about a softening U.S. labour market.
- Jackson Hole Symposium: One of the year’s key central banking events kicks off. With policymakers from around the world delivering speeches, any unexpected policy signals could spark significant market volatility.
Friday – UK Retail Sales
Retail sales in the UK are expected lower at 0.5%. However, after last month’s GDP beat, the potential for another upside surprise shouldn’t be discounted. A stronger figure could provide Sterling with further short-term support.
Final Thoughts
The week ahead is likely to bring more volatility, with a packed schedule of economic data and the all-important Jackson Hole symposium at the back end of the week. While Sterling has shown resilience, its strength rests on fragile foundations, and UK fiscal pressures remain a growing concern. Meanwhile, the Dollar continues to face headwinds from weaker data and shifting Fed expectations.
For businesses and investors, the message is clear: stay nimble, keep a close eye on developments, and ensure risk management strategies are in place as markets react to a busy week of economic and geopolitical headlines.
GBP/EUR 1.1582 GBP/USD 1.3531 GBP/AED 4.9709
GBP/AUD 2.0781 GBP/CHF 1.0923 GBP/CAD 1.8675
GBP/NZD 2.2796 EUR/USD 1.1669 GBP/ZAR 23.8572