The Daily Update - Sterling UK

Happy holidays... that is until you go abroad and realise your hotel is costing you a few extra hundred pounds, and that meal in the South of France in July 2015 now costs 23% more in sterling terms.

Although we have the Fed and ECB minutes for July on Wednesday, market focus this week will likely be on the UK economy and in particular the path of the pound as we get the first post-Brexit hard economic data.

Today August house prices are expected to fall 1.2%, but the market will be waiting for data later in the week in the form of inflation numbers for July with RPI, CPI and PPI trying to gauge how high inflation could go with the pound’s continued weakness. On Wednesday, we have UK unemployment followed by the important retail sales report and Friday we have the Public Finances release again for July and Post-Brexit.

So with sterling down 10.8% against the US dollar between the 23rd and 27th June and down 9% against the Euro over the same few days, it would appear the market shorts were put in place a little late in that move and traders may not be sitting on much of a profit, as yet.

That makes the upside for the pound following a surprise ever more likely as not many market participants would be wanting to own up to have lost money over Brexit. Rather like an elastic band, sterling has the ability to snap back very quickly if indeed a surprise does become part of the equation. Is this likely? Now that is doubtful as we have already seen the concerns from the BoE and the risks to the UK economy seem to be lining up to the downside and very few positives can be found at this juncture, even better-than-expected data will be explained away as the worst is still to come later.

However, we won’t be surprised if sterling has a strong bounce if the late positions get squeezed out to avoid turning their small profits into losses. Then I for one will rush to my local exchange and buy Euros for my trip to Spain in September as the future path for sterling is likely to be a period of prolonged weakness.

Am I talking my book? Certainly, and continue to pray for some glimmer of positives for the UK to save me a few quid.