The positive vibes surrounding PM May’s cabinet reshuffle faded for the pound for the most part of the week, but it got a fresh boost later on. Can this momentum be sustained?
And can Brexit hold on to the spotlight in the next few days with these two major catalysts lined up?
U.K. CPI (Jan. 16, 9:30 am GMT)
Strong price pressures have been one of the main reasons for the BOE rate hike in 2017, which means that CPI reports impact policy expectations.
A dip from 3.1% to 3.0% is expected for the headline CPI while the core version of the report could fall from 2.7% to 2.6% in December. Underlying measures of inflation such as PPI, RPI, and HPI are also lined up and could provide clues on how the next set of reports might turn out.
Keep in mind that the November report featured upside surprises, so there could be room for more gains in price levels this time. Then again, the pound has appreciated in the latter part of December, so there could be downside price pressures on imported goods.
U.K. Retail Sales (Jan. 19, 9:30 am GMT)
Before the week comes to a close, the Brits will release their latest consumer spending report and provide more insight on whether or not higher inflation is weighing on consumption.
This report is also a pretty huge deal since spending comprises a huge part of overall growth and is also considered a leading indicator for production.
Analysts expect a 0.8% drop in retail sales for the month of December, erasing a chunk of the 1.1% gain seen in the previous month. However, holiday shopping might be a seasonal factor propping spending higher.
Also, keep in mind that the average earnings index has been edging higher since mid-2017, which means that consumers have a bit more moolah to spend on retail purchases.
Last Week’s Price Review
The pound had another mixed performance this week. Like last week, however, the pound’s wasn’t merely a victim of opposing currency price action since pound pairs did have a certain degree of uniformity, especially on Friday.
The pound had a steady start but began to noticeably tilt to the upside after British PM Theresa May announced a reshuffle in her cabinet. However, the pound’s price action became more mixed when Tuesday rolled around, before starting to tilt to the downside by Wednesday.
There were no apparent catalysts, but some market analysts say that the pound’s slide was due to profit-taking as investors waited for fresh catalysts.
Anyhow, the pound continued to slide lower but began to find support at the start of Thursday’s U.S. session. The catalyst that lent support to the pound isn’t really clear, but some market analysts pointed to former UKIP leader Nigel Farage’s call for a second Brexit referendum since that apparently stoked speculation that a Brexit may be avoided entirely.
In any case, the pound started trading mostly sideways after that before tilting to the upside again when Friday’s Asian session rolled around, even though there were no fresh catalysts.
The wonky price action then continued during the morning London session when the pound spurted higher across the board. Again, there were no fresh catalysts.
A fresh catalyst did finally appear later when word got around that Spain and the Netherlands have agreed to support a Brexit deal that will keep the U.K. close to the European single market.