GBP weekly forecast

Sterling risks a setback if midweek inflation falls below expectations. The Pound has shown a slight upward trend against its G10 peers in recent days, returning to the middle of the range observed thus far in 2024.

There doesn't seem to be much that will cause significant movement ahead of Wednesday's release of UK inflation data. The market expects CPI inflation to drop to 2.1% year-on-year in April from 3.1% in March, while the core inflation rate is anticipated to decline to 3.7% from 4.2%. Any deviation from these expectations can impact the currency, with the Pound strengthening on upside surprises and weakening on any undershoot.

Another thing to keep an eye on will be the services release within the inflation release, which often generates the largest reaction within currency markets, the Bank of England have stated this is currently their main focus point. This is further highlighted when the Bank of England's deputy governor, Ben Broadbent, said earlier this month that he will be looking more closely at services inflation than wages in the short term.

The services release doesn't have an estimate, but any figure below last month's 6% will likely bolster expectations for a June interest rate cut. The Pound will almost certainly weaken if currency markets fully price in a June rate cut following the data release.

Looking ahead, the primary driver of movement for the Pound this week is likely to be the release of the UK’s latest inflation figures.

As both core and headline inflation are forecast to cool closer the BoE’s 2% target, this could see GBP exchange rates drop in mid-week trade.

We see the UK's preliminary PMI's scheduled for release on Thursday.

On Friday, the UK’s retail sales for April are forecast to show a marginal growth level of 0.3%, which could lead to GBP closing the week stronger against its peers.

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