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Weekly Central Bank and Global Data Outlook for the Pound Sterling - May becomes PM and BoE Decision Due This Week

July 11, 2016 - Written by John Cameron

The near-term is unlikely to see any decline in the Pound's appeal, on account of the Bank of England (BoE) interest rate decision not being due until noon on Thursday.

The Pound has shot up against most peers recently, thanks to the news that Theresa May will be becoming Prime Minister by late Wednesday. The Pound could be in for a shock on Thursday, however, if the Bank of England slashes the interest rate below 0.50%.

Chinese Growth Data Forecast to Provoke Volatility

Several major data sets from far flung corners of the globe are forecast to trigger price action in the currency markets this week. Two central bank monetary policy announcements stand out, but there’s potential that these may be overshadowed by other tier one releases. Our leading data analyst takes a look at the stand-out publications and the effects they may wreak below …

All has been quiet on the Chinese front during recent weeks as investors switched their focus elsewhere; however, this is likely to change during the early hours of Friday morning with the publication of official Q2 Gross Domestic Product figures. The counterpart Q1 numbers caused a flurry of activity in the markets when they were published earlier this year, with their revelation that Chinese economic activity has slumped to its lowest level for years at a year-on-year 6.7%.

If this week’s Q2 numbers point to another drop in GDP, then expect investors who are already edgy following the UK’s Brexit vote, to abandon risk-laden assets. Such a move would favour the safe haven Japanese Yen (currency : JPY) and the Swiss Franc (currency : CHF) while damaging the Commodity Dollars (CAD, AUD, NZD).

Bank of England (BoE) Predicted to Cut the Base Rate

Elsewhere, Thursday morning’s Australian jobs data for last month will provide the ‘Dollar from Down Under’ with further direction. Overall joblessness in Australia stands at a relatively manageable 5.7% - if this week’s official stats point to a further decrease in this figure, then the Aussie Dollar will record renewed gains against the Pound Sterling (currency : GBP).

Meanwhile, the Canadian and UK central banks provide the other points of note this week. The world has changed since the last policy decision from these two lenders of the last resort thanks to the ‘Leave’ result in the UK’s European Union referendum on 23rd June. Analysts believe that the Bank of Canada (BoC) will maintain its benchmark lending rate at 0.50%, but a pre-emptive cut to shield Canada’s economy from an attendant dip in global growth cannot be ruled out.

On the other side of the Atlantic, it is considered a likelihood that the Bank of England (BoE) will decide to cut its ‘Base Rate’ from a current record low of 0.50% to 0.25% on Thursday. BoE Governor Mark Carney dropped heavy hints that he would support such an action during the days following the referendum result. Such a decision by the Bank’s nine man policy committee is forecast to trigger heavy selling pressure on Sterling.

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