Poor UK construction output hits GBP

Friday saw GBP take a dip against fellow majors as the Office of National Statistics released figures showing that UK construction dipped by 2.8% which is the biggest drop since November last year.
This contributed to the loss of gains made earlier in the week. Analysts do, however, feel as if this is merely a temporary dip as the UK economic outlook looks strong for the most part. An IMF report on Friday also served to back this idea with a suggestion that the economy will grow by 2.9% this year.
The BoE is now expected to be under some pressure to normalise its monetary policy sooner rather than later. We will have a better picture of how the UK is performing later this week when we see inflation data out tomorrow and unemployment data out on Wednesday. If we see an improvement in these two areas, it could put further pressure on the central bank to shift away from its easing cycle.

In the Eurozone, we saw a good week for EUR following a good report from the ECB and a positive return to the financial markets. Analysts are now expecting the ECB to some action against the threat of deflation – perhaps in the form of a rate cut in the next month or so. This kind of thinking has been well-received by the markets. With the Eurozone’s inflation levels at their lowest for over 4 years, policy makers will now want to avoid an extended period of deflation where there is so (or no) economic growth. If the euro continues to make gains, we may also see it come to pass that the ECB then have to ease monetary policy because a stronger single currency impacts the ECB’s inflation mandate.

For the US this week it’s likely to be another make or break week for the US Dollar. Today heralds the release of the Retails sales m/m – which is forecast to show impressive growth against previous figures released last month. This is followed on Tuesday by the US CPI data (there is a recurring theme for inflation data this week around the globe). Needless to say, the data will be largely influential on the price of the US Dollar, and will decide the direction heading into the Easter weekend. Fed chair Janet Yellen also comes to prominence this week, with back-to-back speeches on Tuesday and Wednesday, which will be scrutinised to decipher interest rate clues. The week rounds off on Thursday with the ever-important unemployment claims print. This is preceded by the Philly FED Manufacturing Index, which will indicate how optimistic businesses are that the current economic climate is in a growth phase.