UK retail sales in focus

After a volatile week for GBP crosses, this week will be relatively quiet on the data front and, as such, the catalyst for a continuation of last week's EURGBP downtrend would likely be the ECB. A dovish ECB press conference or a market surprise with fresh policy stimulus would likely add downward pressure to EURGBP, which remains elevated, according to the FFV model. Over the medium term, GBP is expected to outperform the EUR, due to a significant growth differential, but domestic headwinds should push cable lower over the coming year. UK economic growth remains relatively robust, but fiscal consolidation will likely weigh on UK activity in an environment of surprisingly low inflation and the underpriced impending EU referendum.

On the data front, PSNBx (Wednesday) is expected to print at £10.0bn, as September is typically characterized by strong borrowing. Therefore, PSNB is expected to come in at £9.2bn. 

"We will watch for whether tax receipts recover, as well as the effect of the spending cuts announced in the 2015 budget. Moreover, we look for retail sales (Thursday) to pick up somewhat in September, with sales volumes increasing 4.7% y/y (0.3% m/m). We acknowledge that risks are tilted to the upside, based on the strong signal sent by the Barclaycard Spend Trend Index", notes Barclays.