Pound sluggish on persistent BoE hike fears

The pound slid on Friday as markets remained gloomy over the outlook for UK interest rates, although Sterling was able to recover some losses by the end of the day.

The pound is on positive form this morning. GBP/EUR has climbed to €1.1321, while GBP/USD is up to US$1.3164. GBP/AUD has risen to A$1.7153, while GBP/NZD has shot up 0.7% to NZ$1.9208. GBP/CAD has risen to C$1.6885.

Read on to see why today’s UK credit data could be seen as both positive and negative for the pound…

What’s been happening?

The pound remained on poor form as the weekend approached, with markets still feeling gloomy after Thursday’s disappointing retail data. Observers were starting to seriously question whether their expectations for a rate hike this week from the Bank of England (BoE) had been too optimistic.

Even if the BoE does opt to tighten monetary policy, markets are now of the belief that the move would be a one-off and not the beginning of a sustained move towards much higher borrowing costs.

GBP/EUR was able to recoup early losses and record some gains versus the euro by the end of Friday’ session, however. With the US dollar on strong form, the outlook for the euro has tilted to the downside.

Although German producer price data was much better than anticipated – a good sign for future inflation readings – the fact that the European Central Bank (ECB) is poised to increase quantitative easing should anything concerning happen is keeping markets on edge.

GBP/USD, meanwhile, continued Thursday’s tumble, although the pound was able to recover its losses by the end of the day’s trading.

Finalised GDP data for the third quarter showed that the US economy was still growing at a decent clip, printing a 3% instead of slowing from 3.1% to 2.6% as forecast. This only supported the view that a December rate hike is incoming.

What’s coming up?

There’s plenty of data on tap today, although the pound may remain soft over the coming days as markets anxiously await Thursday’s policy announcements and Inflation Report.

UK consumer credit and mortgage data is set for release shortly; there are fears over the level of household indebtedness, but also signs that consumers are using borrowing to fuel spending. Falling credit levels could therefore suggest consumption will slow – a bad sign for the economy.

With QE seemingly balanced on a knife-edge, today’s German consumer price index figures could either strengthen or weaken the outlook on inflation in the Eurozone’s strongest economy and send the euro racing one way or another.

Inflation data will also be important for the US dollar today, as the personal consumption expenditure figures will be released this afternoon.