GBP: Heavy data calendar could result in increased volatility - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that after a run of data pointing to a sharper recovery in sentiment in the UK, this week brings data on inflation, employment and retail sales which could result in increased volatility for the GBP.

Key Quotes

“The jobs (for June) and retail sales (for July) data both surprised to the upside last month with the retail sales data being for July and hence the more surprising given it was post-Brexit. That strength is unlikely to persist though and the August data is likely to show some give-back. The BRC same-store sales released last week revealed a 0.9% drop in August on an annual basis and given the July ONS data was boosted in part by warm weather there seems a good chance that the August data this week will reveal some weakness.

The Bank of England monetary policy meeting will also take place on Thursday and the minutes of the meeting will likely reveal acknowledgement that the fallout from Brexit was not as bad as many had predicted. However, the MPC will not draw too many conclusions at this early stage and hence we doubt the minutes will offer much in shaping monetary policy expectations going forward. We doubt the BoE will need to cut rates again as it signalled was likely on 4th August but we also see it as unlikely that the minutes will reveal any definitive conclusions on policy so soon after the action taken on 4th August.

Finally, with the UK government back at work, we suspect that Brexit and what exactly the government is planning will increasingly come back into focus. On Friday, there will be an EU-27 leaders’ summit in Bratislava to discuss the EU’s response and strategy in regard to Brexit. This will undoubtedly raise the focus here in the UK over what the UK’s strategy is on Brexit and a continued lack of clarity from the UK  government on what exactly what ‘Brexit means Brexit’ means may raise investor concerns over how negotiations may proceed. Our sense is that the financial markets are currently assuming a ‘soft Brexit’ so any comments from Bratislava contrary to that consensus view might well fuel renewed Brexit anxiety and undermine the pound.”