Market Analysis

Markets focus moves back to the United Kingdom economy

Market participants turn their attention back to the UK economy this week after EU leaders extended the United Kingdom’s departure data from the European Union until October 31st. The United Kingdom economy releases a raft of high-impact macroeconomic data points before the Easter bank holiday begins, including inflation, retail sales, jobs, unemployment, and wage earnings data.

Financial markets have recently been suffering from Brexit fatigue, this week’s key data points allows traders and investors a chance to once again start to look at the fundamentals of the United Kingdom. Last week, the United Kingdom economy posted stronger than expected monthly gross domestic product data, which defied most economists expectations of a post-Brexit slowdown and stagnation in UK growth leading up to Brexit.

UK average earnings and CPI inflation data are likely to be the highlights amongst the UK data releases this week, following a healthy pick-up in both data points in February. Most economists are expecting that UK inflation remained largely flat during the month of March, while average UK earnings are expected to have increased above the three percent threshold over a three month period.

The Bank of England noted during the last policy meeting that Brexit is likely to cause short-term volatility in UK data points, sterling and house prices, with Brexit now delayed, the expected volatility has yet to fully materialize. Few economists expect that the Bank of England will change interest rates until Brexit finally happens; the many duty of the MPC will be to stabilize the UK economy through the continued uncertainty that UK businesses and households are currently experiencing.

Retail Sales figures from the UK economy this week may also shed some light on how the UK consumer is feeling post-Brexit. Sterling is steadily declining back towards the 1.3000 level as the investor appetite for the GBP/USD pair is currently subdued. The GBP/USD pair is now at-risk of slipping back towards the lower end of the 1.2700 to 1.3100 price range if demand for the greenback starts to pick-up.


GBP/USD Daily Mountain Chart Source: ActivTrader Platform

GBP/USD Daily Mountain Chart | Source: ActivTrader  


Technically, the 1.2980 and 1.2840 levels are important support areas to watch if the GBP/USD pair starts to slide below the 1.3000 level. To the upside, a sustained break above the 1.3100 level could prompt a test of the 1.3180 and 1.3260 levels, although price-action for the GBP/USD pair is currently fairly weak.


Written by Nathan Batchelor, External Analyst

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