Sterling in view ahead of key data points

The UK economy comes into focus this week, with a plethora of tier one economic data points providing a likely pickup in volatility for the pound. With less than three weeks until we see the Bank of England (BoE) return to the stand, these data points will be crucial for market expectations. Those expectations currently point towards a 90% chance that the Monetary Policy Committee (MPC) will rate rates for the first time since November 2017.

While the tone from the BoE has largely pointed towards a strong chance that the committee will act in August, Friday saw Deputy Governor Jon Cunliffe lay out a more cautious outlook. He saw limited evidence that wage growth is as strong as had previously been predicted. This provides added interest in tomorrow’s jobs data, with sterling bulls hoping to see average earnings reverse the decline that has seen a fall from 2.8% to 2.5% in the space of two months.

While Tuesday will no doubt see markets focus in on the jobs data (and particularly wages), Wednesday sees heads turn towards inflation data, with consumer price index (CPI) predicted to rise from 2.4% to 2.6%. This would be a significant shift in trend, given the decline in both headline and core inflation throughout 2018 thus far. Of course, with the BoE largely dictated by the core mandate of maintaining price stability, such a rise in inflation could drive greater rate hike expectations from the markets, driving the pound higher.