Not even a couple of downbeat reports were enough to keep the pound from being the second-strongest currency last week, but can it keep up its good streak with this week’s catalysts?
U.K. jobs figures (Jan. 24, 9:30 am GMT)
Employment figures tend to serve as leading indicators for consumption as a stable jobs market and rising wages encourage people to spend. For the month of December, the number of claimants or those getting unemployment-related benefits could drop to 2.3K from the earlier 5.9K figure.
Meanwhile, the average earnings index or the three-month rolling average of wage growth could show hold steady at 2.5% for the period ending in November.
Another uptick would confirm positive momentum in earnings since June last year, which would be a good sign for spending and growth. Apart from that, higher wages paid by businesses typically spill over to higher product prices, which is also a plus for inflation.
U.K. preliminary GDP (Jan. 26, 9:30 am GMT)
By the end of the week, we’ll get a comprehensive picture of how the U.K. economy performed in the last quarter of 2017. Analysts expect to see another 0.4% growth figure, although there might be downside risks due to the 1.5% slump in consumer spending last December.
Then again, analysts also point to a potential upside boost from manufacturing and exports. Stronger than expected results could remind traders that the U.K. economy is brushing Brexit jitters aside and staying resilient.
Speaking of Brexit, last week’s price action has been influenced by speculations on the EU withdrawal bill, so it wouldn’t be a surprise if related headlines would keep pushing sterling around.
Last Week’s Price Review
The pound is the second strongest currency of the week (as of 3pm GMT), thanks to the two-day rally on most pound pairs that lasted from Wednesday until Thursday.
The pound had a mixed but mostly steady start before broadly slipping on Tuesday when the U.K.’s December CPI report was released.
As noted in Tuesday’s London session recap, the headline CPI readings were within expectations. However, market analysts were more focused on the downtick in the year-on-year reading from 3.1% to 3.0%, since this supports the BOE’s forecast during the December BOE Statement that “inflation was likely to be close to its peak, and would decline towards the 2% target in the medium term,” which only warrants rate hikes at a “gradual pace and to a limited extent.”
In other words, traders were supposedly more focused on the downtick and the downtick dampened expectations for a BOE rate hike, even though December’s reading marks the 11th consecutive month that CPI has been above the BOE’s 2.0% target.
Anyhow, the pound later found support and began trending higher on Wednesday and Thursday. And as mentioned earlier, this two-day uptrend is the reason why the pound is a net winner this week.
As to what caused the pound to climb higher, there’s actually no clear catalyst for that.
BOE MPC Member Michael Saunders gave a hawkish speech on his upbeat outlook on wage growth, but the pound was already finding buyers on most pairs hours before Saunders gave his speech. Although it’s certainly possible that Saunders’ speech may have helped to sustain demand for the pound.
Anyhow, some market analysts said that the pound’s climb was spurred by fading domestic political worries in the U.K. and easing Brexit-related jitters.
That does make sense since the E.U. withdrawal bill was being debated in the House of Commons on Wednesday, so speculation that the bill will pass may have pushed the pound higher.
And as it turns out, the majority of MPs voted in favor of the E.U. withdrawal bill on Thursday, which is a victory for Theresa May’s government.
Unfortunately (for pound bulls), the pound was later forced to give back some of its hard-won gains on Friday when the U.K.’s December retail sales report came up short since retail sales volume in the U.K. slumped by 1.5% month-on-month (-0.8% expected, +1.0% previous) and only printed a 1.4% year-on-year increase (+3.0% expected, +1.5% previous).