Weak data and downgraded BOE forecasts weighed on sterling last week, but Carney’s optimism still gave the currency some support. Can this week’s events keep the climb going?
U.K. Q4 2018 GDP (Feb. 11, 9:30 am GMT)
Monthly and quarterly GDP readings are up for release from the U.K. economy early this week, with growth expected to come in flat for December 2018. This should bring the Q4 reading down to 0.3% from the previous 0.6% expansion.
Along with this, data on manufacturing production is due and a rebound of 0.2% from the earlier 0.3% slide is eyed. Preliminary business investment data is also up for release and a 1.1% contraction is expected for Q4, digging a deeper hole after the previous 1.3% drop.
Recall that the BOE already downgraded growth estimates in their Inflation Report released last week, so pound bulls aren’t exactly feeling giddy about these reports. Weaker than expected results could lead to another leg lower for pound pairs while upside surprises could underscore Carney’s slightly optimistic views.
BOE Governor Carney’s speech (Feb. 12, 1:00 pm GMT)
The BOE head honcho himself has another testimony coming up this week, possibly allowing him to share more insights on his not-so-gloomy outlook.
Carney is scheduled to talk about the economic outlook and global trade tensions in his speech in London, which means that market watchers would read between the lines to see what his remarks imply for monetary policy. He already pointed out how Brexit uncertainties have shaved off as much as 1.5% of GDP relative to pre-referendum expectations and that trade troubles aren’t helping.
His upcoming testimony could more or less touch upon the same points but if he takes a more assuring tone once more and highlights the resilience of the U.K. economy, the pound might be due for another big bounce.
U.K. inflation reports (Feb. 13, 9:30 am GMT)
Keeping the spotlight on U.K. data are the inflation readings due to be released midweek. The BOE also set the bar low for these figures after downgrading their estimates in the latest Inflation Report.
Headline CPI is expected to have dipped from 2.1% to 1.9% in January while the core reading likely held steady at 1.9%. Underlying inflation figures also paint a mixed picture, with producer input prices expecting a small 0.2% rebound from the earlier 1.0% drop and output prices projected to stay flat.
U.K. retail sales (Feb. 15, 9:30 am GMT)
Last among the economic reports is the U.K. retail sales data, which could show a meager 0.2% increase for January. Still, this would mark a decent recovery from the previous 0.9% slide.
Now this particular report doesn’t usually trigger a huge reaction from the pound, but it’s helpful to take note of how the actual numbers turn out since consumer spending accounts for majority of overall growth after all.
Stronger than expected results could confirm that the U.K. economy is indeed staying resilient and likely able to benefit from the recent pickup in employment and wages.
Brexit, Brexit, Brexit
With less than a couple of months left to go before D-day (or is it B-day?), market watchers have their eyes and ears glued to the last few episodes of Brexit.Last week ended with PM May unable to secure concessions from EU officials (no surprises there) so her upcoming pitch to parliament isn’t looking too good. Instead, No. 10 is expected to ask for more time (again!) to get legally-binding changes to the Irish border backstop.
The Labour Party is expected to push for another “meaningful vote” before the end of this month, although Housing Secretary James Brokenshire admitted this might not be a decisive one.
Either way, it could shape up for a week filled with more back-and-forth arguments among MPs with not much getting done. Meanwhile, the clock is ticking…
Missed last week’s price action? Read the GBP price review for February 4-8!