Outlook for Pound Sterling this week: Thursday BoE rate decision + US Non-Farm Payrolls
The Pound currently buys 1.1800 Euro's (+0.6%) and 15580 US Dollar's (+0.5%).
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Today has seen RBS publish their latest set of long term Pound sterling forecasts, the details of which can be seen here.
This article however focuses on the immediate issues facing Sterling this week.
The outlook for the British pound this week
Tuesday brings with it PMI Construction data, a reading of 56.9 is forecasted. Wednesday brings Services PMI figures; analysts are looking out for a reading of 59.8, a decline on last month's 60.2.
"Today’s UK manufacturing PMI was stronger than expected. The output sub-index gives an estimate of 4.5% y/y growth in the official ONS output data. Despite this good reading, we see downside risks to this week’s UK services PMI survey as it has risen
strongly to high levels," says Paul Robson at RBS.
Bank of England Decision
Robson goes on to say that the Bank of England MPC's decision for September will also prove key for the British pound:
"The focus this week will be Thursday’s BoE rate decision. With a change in policy settings highly unlikely this month, the market's focus will be on whether there is an accompanying policy statement. On balance we expect a statement.
However, with the MPC having chosen not to issue a statement in August having broken from tradition in July, this call is much more uncertain than usual. Whether one materialises or not, it is hard to envisage a dovish market reaction.
The absence of a statement would encourage the view that there is growing 'hawkish' dissent within the MPC.
Given that the August Minutes suggest the MPC have different views on policy, we believe it will be hard to get a consensus supporting an overtly dovish tone.
US Non-Farm Payrolls and US Dollar Strength
Away from the UK, Friday’s payroll report presents the main event for the week.
Robson says:
"In fact, it has the potential to set the tone for the next couple of months. The report should only affect the pace of any eventual announcement on tapering rather than the start date, which is still expected to be September.
"We would expect a stronger number to play USD positive, with only a print sub 100k likely to see the USD weaken. EM currencies appear the most vulnerable as investors continue to react to higher real USD borrowing costs. We do not expect any change of policy from the ECB on Thursday.
"With Euroland politics around the periphery appearing in a holding pattern ahead of September’s German elections, President Draghi will be choosing his words carefully. For choice, we expect EUR/GBP to continue its decline."