There are upbeat economists on the loose in the UK
Public Sector Net Borrowing in July fell by £272m more than expected, pushing Sterling pretty close to breaking through 1.3150 versus the Dollar on Friday and the pair dropped below 1.3030 after the UK market shut for the weekend. The Euro pushed Sterling close to the 1.1507 area before fading again, opening this morning at 1.1560.
The Sterling sell-off was caused by expectations that the government will sanction significant fiscal easing in the Autumn statement and rumours that Article 50 would be triggered in April 2017.
Speculation of a recession in the UK economy has been brushed off by economists after a steady stream of upbeat economic data. Last week’s bumper UK employment and retail sales statistics arrived after the Treasury revised GDP estimates upward from 1.5% this year to 1.6% and from a predicted 0.5% to 0.7% in 2017.
On Friday the Dollar recorded gains of up to 0.64% versus the Pound due to the increasing likelihood of a Fed rate hike by the end of the year. Fed Vice Chair Stanley Fischer commented over the weekend that the US is close to hitting Fed targets for employment and inflation. Whilst he did not explicitly mention interest rates, interest rates will only move up if these targets are exceeded. This week in the US, we expect focus to be mainly on the annual Jackson Hole Economic Policy Symposium, were Fed Chair Janet Yellen is due to speak.
The Euro strengthened by 0.62% during Friday’s European trading session after the German Producer Price Index came in better than predicted at 0.2%, boosting the single currency against the Pound. However, the Euro will be restricted to relatively narrow ranges during today’s session as we have no data which is likely to cause any volatility in the markets.
Data to watch: 1.30pm US Chicago Fed National Activity Index.