Not even the lack of top-tier U.K. data was enough to stop pound bulls from charging last week. Will major events this week change all this?
U.K. inflation reports (Mar. 20, 9:30 am GMT)
To start off, the U.K. will be serving up its inflation readings for February, most importantly the headline and core CPI figures. Analysts are expecting to see a dip from 3.0% to 2.8% for the former and a fall from 2.7% to 2.5% for the latter, which could douse tightening expectations.
Underlying inflation reports such as the retail price index and producer price index could provide more clues on how future price pressures might turn out. Stronger than expected results could still keep the pound afloat.
U.K. jobs figures (Mar. 21, 9:30 am GMT)
Next up, we’ve got the claimant count change for February and the updated average earnings index and unemployment rate for the period ending in January.
The number of claimants could print a drop of 3.1K for the previous month, a slower reduction in joblessness compared to the earlier 7.2K fall. Average earnings could be up from 2.5% to 2.6% for the three-month period ending in January while the unemployment rate is slated to hold steady at 4.4%.
U.K. retail sales (Mar. 22, 9:30 am GMT)
On Thursday, we’ve got the retail sales report for February and this is expected to show a 0.4% gain. This would be an improvement over the earlier 0.1% uptick, but consumer spending could still show some weakness due to rising price levels and wages being unable to keep up.
However, this report might not see a lasting impact as the BOE decision is due a few hours later and pound traders might sit tight instead.
BOE policy decision and MPC minutes (Mar. 22, 12:00 pm GMT)
The BOE could still decide to sit on their hands for the nth time and keep rates on hold at 0.50%. Asset purchases are also likely to be maintained at 435 billion GBP in a unanimous decision.
Market watchers would likely read between the lines of the MPC meeting minutes to gauge any changes in tone that might serve as hints on when the next hike might be.
Note that their February statement was a bit more on the hawkish end as policymakers shifted expectations for two interest rate hikes this year while upgrading both growth and inflation forecasts.
EU Summit on Brexit (starting Mar. 22)
Another potential major driver for pound price action towards the end of the week is two-day European Council summit in which the Brexit transition period would likely be a main topic.
As it is, the bloc is pushing for the transition to end by December 2020 while Brits are hoping to extend it a bit more. The Irish border issue is still the elephant in the room, but a provisional deal is expected, especially since PM May will be present.
Last Week’s Price Review
As of 2 pm GMT, the pound held the honor of being the second strongest currency of the week after the mighty yen.
Let’s first strip GBP/CAD from the overlay since that’s clearly an outlier.
That’s much better. Anyhow, the pound had a mixed start, but buyers were already notable. There was no apparent reason for the pound’s climb on Monday, but some market analysts say that the early signs of pound strength was due to weakness on the part of the Greenback, as well as a continuation of last week’s rise.
The pound got another bullish push during Tuesday’s U.S. session, apparently as a reaction to British Finance Minister Philip Hammond’s annual budget speech since Hammond reduced his budget deficit expectations while upgrading the U.K.’s growth forecasts.
After that, the pound’s price action became a bit messy before becoming uniform again thanks to broad-based buying pressure during Thursday’s U.S. session.
There was no clear reason for this and the only available catalysts at the time was news that the U.K., U.S., Germany, and France released a joint statement condemning Russia’s alleged involvement in the nerve agent attack on a Russian double agent and his daughter.
It’s not really clear why the pound reacted positively to this news, assuming this piece of news is the catalyst in the first place.
However, the E.U. summit to discuss Brexit will be held next week. And this act of solidarity with the U.K. may have been seen as a positive thing. Also, Theresa May’s tough stance can be seen as a sign of leadership (or a diversion from domestic troubles, if you’re more cynical). And besides, Theresa May did use this incident to ask for more legislative powers.
Anyhow, demand for the pound on Monday, Tuesday, and Thursday, as well as weakness on the part of the comdolls, allowed the pound to outperform its peers. And hopefully, we’ll get more action next week since we’ve got the E.U. Summit on Brexit and another BOE statement coming our way.