Synopsis:

ING emphasizes the significance of the upcoming release of key UK economic data, including February wage and March services figures, in determining the trajectory of the Bank of England's (BoE) potential easing cycle in 2024. With market expectations of a June rate cut currently low, any surprises in the data could have substantial effects on the value of sterling.

Key Points:

• Key Data Releases: This week, the UK will release crucial economic data with February's wage figures due on Tuesday and March's services data on Wednesday. These reports are pivotal in assessing the economic health of the UK and the potential for monetary easing by the BoE.

• Impact on Monetary Policy: Analyst James from ING is slightly more optimistic than the consensus regarding the upcoming services CPI data. A confirmation of his forecast could support sterling, signaling a more robust economic outlook than currently priced into the market.

• Market Pricing and Sterling Vulnerability: Current market pricing indicates only a 31% expectation of a BoE rate cut in June. Consequently, any negative surprises in the wage or services data could adversely impact sterling. Particularly, GBP/USD is noted as appearing vulnerable, with potential downside targets around the 1.2365/75 range.

• EUR/GBP Stability: Despite potential volatility, the EUR/GBP exchange rate remains stable, currently trading within a mid-range between 0.85 and 0.86.

Conclusion:

This week's economic data releases are crucial for shaping market expectations regarding the BoE's monetary policy direction in 2024. With sterling appearing vulnerable to negative data surprises, these releases could potentially prompt significant movements in currency markets.