Big week (hopefully not weak) for GBP
The pound looks set for an important week this week with inflation, unemployment and retail sales data due out, even as it continues to do fairly well against the single currency. Producer prices output data came in just below 4% year on year for November on Friday, indicating that inflationary pressures still remain a factor in the UK economy. Input prices have been delayed until today due to data problems, with expectations set for a rise of 8.3% (YoY), while tomorrow the CPI data is due out, and is expected to stay constant at 3.2% (YoY). It wouldn’t surprise, however, if it came in higher given the surge in commodity prices in recent months. There is relatively little economic data out in the eurozone this week, although the EU Summit of leaders, which will discuss any changes to the Lisbon Treaty required by the recent contagion effects in the eurozone will doubtless loom large over financial markets. Aside from that, October industrial production should show a solid rise after German production rose by almost 3% on the month. The ZEW survey is expected to show another small rise in German economic confidence in wake of upward revisions to 2010 GDP. The IFO Survey, which is released towards the end of the week is expected to show signs of consolidation, from what are cyclical highs. Today as a whole the data calendar is extremely quiet.
The single currency has continued to remain under pressure with bond spreads continuing to widen again, despite supportive statements from Messrs Sarkozy of France and Merkel of Germany on Friday, who both indicated that they would do whatever it took to support the euro. This was a view reiterated at the weekend by Germany’s finance minister Schaeuble ahead of this weeks European union meeting to discuss a permanent rescue mechanism for indebted or insolvent nations from 2013. However markets appear now immune to such rhetoric on the basis that talk is cheap, and there being no discernible evidence in terms of action thus far that the authorities have the ability, or consensus to get ahead of the crisis.
The US dollar, while being underpinned by rising treasury yields also faces a key week from a data point of view, with the FOMC meeting and retail sales for November tomorrow, followed by inflation data on Wednesday. Expectations are for the Fed to keep its stimulus plan unchanged at $600bn despite the worse than expected employment data early this month.