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The Week in Review

The Week in Review

After building some positive pressure on the US Dollar during the majority of the week last week, the Pound has opened this morning selling off slightly. The GBP/EUR has continued to move very slowly downward and this has been the same story as we open today as well. So, overall a bit of a shaky start to the week for GBP sellers.

There are a number of factors at play for the UK, with inflation and employment being one. The UK is a mandate driven economy and our target inflation rate is 2%. However we have, for the second month now, posted an inflation figure of 0% (meaning that the cost of living is broadly the same as it was a year ago) thanks in some part to importing very low oil prices. This is still under considerable scrutiny for the potential to become a negative figure. Many analysts do still predict that we would only see short term negative inflation and could begin to finally produce price pressure this year and have forecast that we should hit our inflation target by 2017.

Employment data out last week is also an important piece of information to make an effective gauge of our economic situation. The information reported for the UK jobs data set last week was largely positive with average earnings actually up and a static claimant count and unemployment rate.

The Russian economy hit headlines too, with a fall in oil prices and Western trade sanctions contributing to a large pull back in GDP growth. Expectations of further contraction are widespread and certainly it does appear as if Russia is on the brink of recession. During the last year, the Russian Rouble has plummeted in value and, as an example, has fallen 30% against the US Dollar.

UK Banks are in the news, too. The Financial Conduct Authority (FCA) is expected this Wednesday to announce its fines for the banks involved in the FX manipulation scandal. These fines are generally forecast to be in the region of £4bn in total between all the banks involved. Of course, with these types of reviews will come significant need for a drastic change in the way the banks are structured, run and monitored. Consequently, the fines are normally just the start of the impact as widespread changes are typically expensive (but necessary) to implement.

We have a quieter day on the news front today with only the Swiss Retail Sales figure really of primary importance. As we move through the week and more inflation discussions take place, we may see some more strength come away from the Pound and so a good opportunity today to examine Dollars in particular.

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