GBP

The trend towards low volatility continued in the currency markets last week as we saw one of the lowest weeks of market movement for G10 pairings so far this year. GBP/EUR remained at rangebound levels slightly above 1.17, and GBP/USD also stayed within its current position, fluctuating between 1.25 and 1.26.  

The lack of volatility could, in part, be attributed to a shortage of market data last week. However, this week, we'll see a string of significant data releases that could result in more movement in the currency.

Later today, we'll hear from the Bank of England's Governor Bailey, who will give a speech this evening about monetary policy plans for 2024. 

This will then be shortly followed by the UK's latest unemployment data, due for release tomorrow morning. Forecasts currently anticipate a slight drop from 4.2% to 4% over the last three months. This would see the UK return to within the range of 3.5-4%, which has generally been the unemployment trend for both 2022 and 2023.

Perhaps even more significant to UK markets will be the Consumer Price Index (CPI) inflation readings due for release on Wednesday. Markets expect another slight increase in headline inflation from 4% to 4.1%, reflecting the same 0.1% increase we saw last month and a similar increase in core inflation, rising from 5.1% to 5.2%. Inflation remains stubbornly high in the UK, and whilst it has partially caught up to its peers, there seems to be little traction to pull inflationary pressures any further down.

This, in turn, may boost the pound as plans for interest rate cuts will have to be pushed further into the future, as higher interest rates tend to have positive implications on currency value.

Thursday will bring in the latest UK GDP figures, which are expected to put the UK back in negative growth territory with the monthly forecast currently expected to land at -0.2% for December, falling from the 0.3% in November (reported last month). Any deviation from this estimation could trigger market movement.

Friday could end the week on a potentially positive note, with UK Retail Sales numbers expected to post a healthy recovery, jumping to 1.5% following the -3.2% seen last month.

EUR 

Much less data is due for release in Europe this week, which could mean the majority of the volatility for the currency pairs involving the euro will mainly be driven by the value change of the other currency. 

The most significant release of the week will be the latest growth data for the EU on Wednesday. GDP in Europe is expected to remain unchanged at 0.1% for the year-on-year Q4 reading and land at 0.0% for the quarterly reading.

If the data comes in as expected, this could continue to keep the most globally traded currency pair, EUR/USD, in limbo at its current 1.07 level.