GBP "has certainly become more data dependent" say RBS; EUR Awaits ZEW Survey Data

"The GBP has certainly become more data dependent, and this week there is much to watch. After the CPI data today, we get the unemployment data on Wednesday," says Greg Gibbs at RBS.

RBS economists are forecasting a 2.9% headline CPI, unchanged from June, a tick above the market median of 2.8%. However, RBS forecasts core inflation to tick down from 2.3% to 2.2%, in line with the market median.

RBS Economics are expecting the unemployment rate to nudge down from 7.8% to 7.7%, stronger than the market median of 7.8%. If so, this will appear even closer to the threshold (0.7%) than in the US (7.4%-6.5% = 0.9%).

"As such, the relatively close proximity to the threshold and the not insignificant risk (40% assigned by the BoE) that it gets there within 2 years, suggests that stronger than expected labour data may boost the GBP," says Gibbs, "perhaps the stability in the unemployment rate to date is a factor that reduces expectations that it will fall much over the next year even if the economy appears to build momentum.

"Further ahead, the BoE minutes also due on Wednesday will show the result of the vote on forward guidance. RBS Economists expect a 9-0 vote in favour of the guidance, but say, "a dissenting vote is by no means a remote tail-risk."

"Any dissention on the guidance would be viewed as diminishing its effectiveness as it would imply the thresholds and knockouts are up for continuous debate. On the other hand, it might show a bias towards a lower less binding unemployment threshold," says Gibbs.

The minutes will also show a vote on the policy rate and size of the Asset Purchase Facility. At the July meeting, the first for Carney, the vote swung from 6-3 (three wanting more QE, of which one was the former Governor King) to 9-0 for no change on the basis that a guidance policy was in the making.

According to RBS, "it is possible that the vote swings back to one or two favouring more QE. This is less likely now the guidance policy has been enacted. However, there has been little if any obvious additional policy stimulus since July implied by market rates. On the other hand, the activity data has noticeably gained momentum. RBS economists see an 8-1 vote, with one in favour of more QE (David Miles).

The Euro Exchange Rate Today: GDP Data is Key, ZEW Survey, Greece Back on the Agenda

Turning to the Euro element of the Pound to Euro exchange rate we note the Eurozone is also subject to important data releases.

Ahead of the first estimate of Q2 euro area GDP, June industrial production will provide some further insight into activity in the quarter.

"We look for a 0.6% rise in industrial output in June driven primarily by strong data from Germany. This will further cement expectations that the region emerged from recession in Q2 following six quarters of decline. The German ZEW survey will also attract interest as markets continue to develop expectations for activity in Q3. We forecast the headline expectations index rising to 40.0 in August," say Lloyds Bank Research.

ZEW Survey consensus forecasts are for 37.4.

Turning to Greece, news of the potential need for another aid package for Greece did not lead to a significant sell-off in euro.

Indeed, both Estonia and Greece reported stronger GDP numbers yesterday, which is an encouraging sign of life in the Eurozone.   

Kathy Lien at BK Asset Management says:

"For the Eurozone, the German ZEW survey on Tuesday and second quarter GDP numbers on Wednesday are key. There has been a general trend of improvements in the German manufacturing sector that should lift investor confidence but the sharp decline in retail sales in Q2 may have dampened growth in the quarter.  If German GDP fails to live up to market expectations, the EUR/USD could slide to the bottom of this range."