Sterling had a pretty stellar run over the past week despite weaker than expected economic reports. Can positive Brexit updates and hawkish BOE expectations keep propping the U.K. currency up?
U.K. manufacturing PMI (Mar. 1, 9:30 am GMT)
A couple of industry PMI readings are up for release this week, with the manufacturing version likely to carry more weight. Analysts are expecting to see a fall from 55.3 to 55.1 for February, indicating a slower pace of industry growth.
If so, that would mark the third consecutive monthly drop in the PMI reading, possibly leading some to be concerned about business conditions. The manufacturing PMI has also fallen short of estimates in two out of the last three releases.
Prime Minister May’s testimony (Mar. 2)
The bigger market mover for the week might be PM May’s speech on Friday as she is slated to talk about the United Kingdom’s post-Brexit relationship with the EU.
Last week, it was rumored that the EU is mulling am “association agreement” with the U.K. that could give it “privileged” access to the single market. If this is confirmed by No. 10 herself, it might spur confidence in the U.K. economy and lead to a bullish reaction from the pound.
BOE Governor Carney’s testimony (Mar. 2, 10:00 am GMT)
On the same day, BOE head honcho Carney has a testimony scheduled, during which he might emphasize the slightly more hawkish tilt shared in last week’s BOE Inflation Report hearings.
Keep in mind, however, that the pound barely held on to its gains during this event as most traders still appeared doubtful that economic data would be strong enough to warrant another interest rate hike soon.
Last Week’s Price Review
The pound had a good run this week and is currently in second place (as of 3 pm GMT), lagging behind only against the Greenback.
The pound had a steady start but got a bullish infusion during Tuesday’s London session. And as noted in Tuesday’s morning London session recap, the pound’s surge was apparently a bullish reaction to a Business Insider report that cited an unnamed source who is “familiar with the [European] Parliament’s activities” as saying that E.U. plans to have an “association agreement” with the U.K. that may give the U.K. “privileged” access to the E.U. single market.
There was plenty enough follow-through buying that the pound continued to trend higher against on most pairs. Although GBP/USD was a clear exception.
The pound encountered broad-based selling pressure about two hours before the U.K.’s jobs report was released, however. Aside from profit-taking by pound bulls and/or the possibility of a leak, there wasn’t really any apparent catalyst.
And when the jobs report was finally released, the pound tossed and turned for a while because, as noted in Wednesday’s London session recap, the jobs report was actually mixed since there were positive undertones with regard to wage growth.
Selling pressure ultimately prevailed, however. Although the pound later began to find buying interest before, during, and after BOE Guv’nah Carney and company testified before Parliament on the latest BOE Inflation Report since the BOE’s message was hawkish overall, which raised expectations for another BOE rate hike, market analysts say.
Selling pressure would return later, however, likely because of caution and/or preemptive positioning ahead of the U.K.’s GDP report.
And traders were right to be cautious since the second estimate for the U.K.’s Q4 GDP growth was downgraded from +0.5% quarter-on-quarter to +0.4%, which translates to GDP growth for all of 2017 coming in at +1.7%, which is the weakest since 2012.
As a result, the pound encountered more sellers. However, follow-through selling was limited, which reinforces the idea that the pound’s slide ahead of the GDP report was due to preemptive positioning.
Not only that, the pound also later began to rapidly climb higher pretty much across the board, even though there were no apparent catalysts. And this climb persisted until Friday.
Aside from short-covering by pound bears, there wasn’t really anything else. Although some market analysts say that the pound’s rise was due to traders supposedly shifting their focus back on the hawkish rhetoric from BOE officials.
Oh, as a side note, the pound suffered a rather sharp drop across the board on Friday. However, there was no clear catalyst for this and the drop was quickly faded to boot. Although there was word going around that the drop was due to a so-called “fat finger” moment. However, that claim is unsubstantiated.