Sterling faces an important run of UK data over the coming days, and Wednesday's inflation report is the one that matters most.
The Pound has held up well through August, helped mainly by weakness in the US Dollar, with a stronger-than-expected monthly growth figure for June adding some support. This week's figures will test whether that support can continue.
This Morning: A Cooling Labour Market
The week opened with UK employment figures, and the overall direction was one of a jobs market gradually losing heat.
Regular wage growth excluding bonuses was 3.5%, a touch firmer than expected. However, private-sector regular pay growth slowed to its weakest rate since late 2020, while unemployment held at 4.9% and job vacancies fell to their lowest level in more than five years.
The private-sector figure is particularly important. Public-sector pay is currently affected by the timing of NHS pay awards, so private-sector wage growth provides a cleaner indication of whether underlying domestic price pressure is easing. On that measure, it is.
Not everything pointed in the same direction. The number of people claiming unemployment-related benefits fell by around 11,000, when markets had expected an increase but the broader picture remains one of a labour market gradually cooling, leaving Wednesday's inflation report carrying even more weight.
Wednesday: Why the Forecast Matters Less Than It Looks
UK inflation is expected to rise to around 2.9% in July, from 2.6% in June.
At first glance, a higher inflation rate might appear supportive for the Pound, because persistent price pressures make it harder for the Bank of England to lower interest rates, but there is an important difference between inflation rising and inflation surprising.
The Bank of England already expects prices to climb again. Its July projections have inflation averaging 3.2% in the final quarter of this year.
A July reading around 2.9% would therefore be consistent with the direction the Bank already expects, and may not materially change interest-rate expectations on its own.
What is more likely to move the Pound is a clear surprise in either direction, particularly within core and services inflation, which give a better indication of underlying price pressures.
Bank Rate currently stands at 3.75%. At its July meeting, the Bank's Monetary Policy Committee voted six to three to leave rates unchanged, with three members wanting an immediate increase to 4.00%.
That split matters. The immediate debate was between holding rates and raising them, rather than cutting them.
The Bank's next interest-rate decision comes on 17th September.
ECB President Christine Lagarde also speaks shortly after the UK inflation figures, making Wednesday morning particularly relevant for businesses watching GBP/EUR.
Friday: The Consumer, Business Activity and Public Finances
Friday brings another busy morning for Sterling.
Retail sales are expected to fall 0.3% month-on-month, following a strong 1.0% increase in June that was helped by hot weather and World Cup spending. Friday's figures will show whether consumer momentum continued into July.
The preliminary PMI surveys follow, offering an early look at business activity during August.
PMIs ask companies whether activity is expanding or contracting, with a reading above 50 signalling growth. A modest slowdown is expected across both manufacturing and services, although both are forecast to remain in expansion territory.
Public-sector borrowing figures are also released on Friday, providing another update on the government's fiscal position ahead of the autumn Budget.
The Pound has held up well through August, helped mainly by weakness in the US Dollar, with a stronger-than-expected monthly growth figure for June adding some support. This week's figures will test whether that support can continue.
This Morning: A Cooling Labour Market
The week opened with UK employment figures, and the overall direction was one of a jobs market gradually losing heat.
Regular wage growth excluding bonuses was 3.5%, a touch firmer than expected. However, private-sector regular pay growth slowed to its weakest rate since late 2020, while unemployment held at 4.9% and job vacancies fell to their lowest level in more than five years.
The private-sector figure is particularly important. Public-sector pay is currently affected by the timing of NHS pay awards, so private-sector wage growth provides a cleaner indication of whether underlying domestic price pressure is easing. On that measure, it is.
Not everything pointed in the same direction. The number of people claiming unemployment-related benefits fell by around 11,000, when markets had expected an increase but the broader picture remains one of a labour market gradually cooling, leaving Wednesday's inflation report carrying even more weight.
Wednesday: Why the Forecast Matters Less Than It Looks
UK inflation is expected to rise to around 2.9% in July, from 2.6% in June.
At first glance, a higher inflation rate might appear supportive for the Pound, because persistent price pressures make it harder for the Bank of England to lower interest rates, but there is an important difference between inflation rising and inflation surprising.
The Bank of England already expects prices to climb again. Its July projections have inflation averaging 3.2% in the final quarter of this year.
A July reading around 2.9% would therefore be consistent with the direction the Bank already expects, and may not materially change interest-rate expectations on its own.
What is more likely to move the Pound is a clear surprise in either direction, particularly within core and services inflation, which give a better indication of underlying price pressures.
Bank Rate currently stands at 3.75%. At its July meeting, the Bank's Monetary Policy Committee voted six to three to leave rates unchanged, with three members wanting an immediate increase to 4.00%.
That split matters. The immediate debate was between holding rates and raising them, rather than cutting them.
The Bank's next interest-rate decision comes on 17th September.
ECB President Christine Lagarde also speaks shortly after the UK inflation figures, making Wednesday morning particularly relevant for businesses watching GBP/EUR.
Friday: The Consumer, Business Activity and Public Finances
Friday brings another busy morning for Sterling.
Retail sales are expected to fall 0.3% month-on-month, following a strong 1.0% increase in June that was helped by hot weather and World Cup spending. Friday's figures will show whether consumer momentum continued into July.
The preliminary PMI surveys follow, offering an early look at business activity during August.
PMIs ask companies whether activity is expanding or contracting, with a reading above 50 signalling growth. A modest slowdown is expected across both manufacturing and services, although both are forecast to remain in expansion territory.
Public-sector borrowing figures are also released on Friday, providing another update on the government's fiscal position ahead of the autumn Budget.
Sterling hasn't risen against all currencies
Sterling has had a tougher time against the Canadian, Australian and New Zealand Dollars, which shows how much of the recent move in cable has been about the US Dollar rather than a broad strengthening of the Pound.
Canada. July inflation rose to 3.0% from 2.8%, a little above expectations, driven almost entirely by petrol prices. But the Bank of Canada's preferred underlying measures averaged just under 2%, which is below its target, so the headline figure is unlikely to change policy. The Bank has now held its rate at 2.25% for six consecutive meetings and is widely expected to stay there for the rest of the year.
More significant are the new US Section 338 tariffs on certain Canadian goods, which take effect on Wednesday 19th August. They cover around 5% of Canada's exports, and trade talks are continuing ahead of the deadline. For anyone with Canadian Dollar payments, that is a second event this week with nothing to do with UK inflation.
Australia. The Wage Price Index is released on Wednesday, followed by the July labour market report on Thursday. The Reserve Bank of Australia held rates unanimously at its last meeting, which makes incoming wage and employment figures particularly important for the Australian Dollar.
New Zealand. The latest Reserve Bank household survey showed a sharp fall in inflation expectations, with the one-year measure dropping from 5.0% to 4.5% and the two-year measure from 4.0% to 3.4%. That takes some of the pressure off the Reserve Bank of New Zealand to tighten further.
So for businesses paying suppliers in Canadian, Australian or New Zealand Dollars, Sterling's performance against the US Dollar does not tell the full story.
The Budget Is the Political Date That Matters
Talk of a possible early General Election in 2027 has increased, but the more immediate political date for currency markets is the government's first Budget on Wednesday 28th October.
With limited fiscal headroom, borrowing figures between now and then will be watched closely for what they could mean for future tax, spending and borrowing decisions.
For Sterling, any material change in the UK's fiscal outlook could become increasingly important as the Budget approaches.
What This Means for Your Business
Wednesday morning is the key event to watch.
An inflation figure close to expectations may change relatively little. A clear surprise, particularly in underlying inflation, is much more likely to shift Bank of England expectations and move the Pound.
For a business with an international payment due over the next few weeks, the useful question isn't trying to guess Wednesday's number.
It is whether today's exchange rate already protects the budget rate and margin on an invoice you know is coming, and what a move against you would cost if it doesn't.