Resurfacing Brexit jitters hit sterling hard around the middle of the previous week and PM May’s speech did little to shore it back up. Can economic data save the pound this week?
Services PMI (Mar. 5, 9:30 am GMT)
Business PMI readings are typically considered leading indicators for economic performance. Among the three, the services PMI tends to generate the strongest reaction as this sector accounts for the largest chunk of overall activity.
For the month of February, analysts are expecting to see a climb from 53.0 to 53.3 for the services PMI, which would indicate a faster pace of expansion. Note that the construction sector posted an upside surprise while the manufacturing PMI had a smaller than expected dip.
MPC member Haldane’s speech (Mar. 6, 6:15 pm GMT)
Andy Haldane is actually the Chief Economist of the BOE and often accompanies head honcho Mark Carney himself during press conferences. He is due to give a speech at the Royal Society for the Encouragement of Arts, Manufactures, and Commerce in London.
Now expectations are running high for the BOE to hike interest rates again in order to keep inflation in check, but it will be interesting to see if Haldane will take recent Brexit developments into account and adjust his policy bias.
Last Week’s Price Review
The pound had a rather painful reversal of fortune this week since it was the second strongest currency last week but is this week’s second biggest loser (as of 3 pm GMT).
The pound actually had a promising start, which market analysts attributed to BOE Deputy Governor Dave Ramsden’s hawkish comment over the weekend, as well as U.K. Labour leader Jeremy Corbyn’s comment that Labour wants the British government to negotiate a “new comprehensive UK-EU customs union.”
The pound’s bullish reaction to Corbyn’s comment was the pound’s last hurrah, however, since the pound began encountering sellers shortly after that.
There were no apparent catalysts, so market analysts blamed the pound’s weakness on the Greenback’s strength.
The pound steadied after that before getting rushed by sellers again, apparently because of renewed Brexit-related jitters because of Moody’s “UK Brexit Monitor” report, which stated that: “The UK economy grew at a slightly slower pace in early 2018, survey data suggest, and retail sales remained sluggish in January.”
The pound would find buyers later on Tuesday. There was no apparent reason, however, but it’s probable that the pound was a beneficiary of opposing currency price action since the pound advanced against all its peers, with the exception of USD, when new Fed Chair Powell gave his hawkish testimony on Tuesday.
Anyhow, the pound really felt the pain on Wednesday. And as noted in Wednesday’s London session recap, this was due to Brexit-related jitters after the E.U. published its Draft Withdrawal Agreement since there were a few provisions that the British would not find very palatable.
The pound then continued to weaken for a while after that, before finally trading roughly sideways while showing signs of vulnerability to opposing currency price action.
By the way, Theresa May gave her much-awaited speech on Friday, but the pound didn’t really have a uniform reaction, probably because there wasn’t really anything very surprising. Anyhow, you can read more about the details of her speech by clicking on the link below.