Super Thursday is coming up for the BOE this week, which means a lot of potential action for pound pairs. Will it be as exciting as the Super Bowl or will market watchers be as indifferent as the kid who fiddling with his phone during the halftime show?
U.K. Services PMI (Feb. 5, 9:30 am GMT)
Before all that Super Thursday action, the January services PMI is up for release and analysts are expecting to see a dip from 54.2 to 54.1. This would reflect a slightly slower pace of industry expansion, similar to what the manufacturing and construction sectors have reported.
In fact, if the services industry has fared anything like those other sectors, it could be in for a weaker than expected PMI reading for the same month. Recall that the manufacturing figure slumped from 56.2 to 55.3 versus the 56.5 estimate while the construction PMI fell from 52.2 to 50.2 versus 52.0.
Keep in mind that, since the services sector accounts for a huge chunk of overall economic activity, this particular PMI reading could generate a stronger reaction among pound pairs.
BOE Super Thursday (Feb. 8, 9:30 am GMT)
Now for the main events for the U.K. this week… We’ve got the BOE monetary policy decision, MPC meeting minutes, and Inflation Report all scheduled on Thursday’s London session. Grab the popcorn, people!
No actual changes to interest rates or asset purchases are eyed, though, as the central bank already made their tightening move back in November. With that, the minutes of their meeting could prove to be more interesting as traders are keeping their eyes peeled for clues on when the next hike might be.
The quarterly Inflation Report would contain upgraded BOE projections for growth and inflation, which should also be helpful in guesstimating the central bank’s tightening timeline. A press conference with BOE Guv’nah Carney will follow, so expect a bit of tossing and turning for pound pairs then.
U.K. manufacturing production (Feb. 9, 9:30 am GMT)
Before the week comes to a close, the U.K. has another report to release, namely its manufacturing production report. Analysts are eyeing a 0.3% gain, slightly weaker than the earlier 0.4% uptick but an positive read nonetheless.
The industrial production component is expected to post a 0.9% drop, though, while the goods trade balance could print a smaller deficit of 11.5 billion GBP.
Last Week’s Price Review
The pound is mixed for the week (as of 3pm GMT). However, the pound wasn’t a victim of opposing currency price action since price action on pound pairs was roughly uniform, as you can see in the overlay of GBP pairs below.
However, price action on the pound was three-way since the pound initially weakened before recovering and then trading sideways with a downside tilt. And it’s this three-way action that’s the general reason for the pound’s mixed performance.
As mentioned above, the pound started the trading week on a weak footing. And market analysts blamed renewed Brexit-related jitters and increased political uncertainty due to infighting within Theresa May’s Conservative Party over the weekend and rumors that Theresa May’s authority will be challenged yet again, as well as the House of Lords Select Committee on the Constitution report on the E.U. Withdrawal Bill since the report had this to say:
“We conclude that the bill risks fundamentally undermining legal certainty in a number of ways.”
“We acknowledge the scale, challenge and unprecedented nature of the task of converting existing EU law into UK law, but as it stands this bill is constitutionally unacceptable.”
The pound’s weakness then intensified on Tuesday after BuzzFeed leaked a report from the U.K. Treasury, which revealed that the three Brexit scenarios being contemplated by the government would all result in the U.K. being worse off.
The pound would later regain some poise when Tuesday’s London session rolled around, though.
Most market analysts attributed the pound’s recovery to BOE Guv’nah Carney’s upbeat speech on the resilience of the U.K. economy and his optimistic outlook on business investment.
But as marked in the chart above, and as pointed out in Tuesday’s London session recap, the pound was already in recovery mode before Carney spoke, and even though there were no direct catalysts. Although short-covering by shorts ahead of Carney’s speech and month-end flows are possible reasons.
Also, the pound did noticeably get a second bullish wind after Carney spoke.
Moving on, the pound’s would-be rally was cut short on Wednesday when Reuters released a report that cited two unnamed British finance executives who were in a meeting with European Commission officials as saying that E.U. officials have rejected a proposal to not to place barriers on the financial services offered by the City of London.
Dip demand was notable, though, and the pound even bounced back later during the U.S. session. There were no new catalysts, but market analysts pointed back to Carney’s upbeat speech since that was supposedly a sign that the BOE may be hiking again soon.
Anyhow, the pound continued to move higher after that until Thursday rolled around since the U.K.’s disappointing manufacturing PMI report (55.3 vs. 56.5 expected, 56.2 previous) apparently enticed pound bears to jump in, causing the pound to trade mostly sideways while tilting to the downside after that.