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Sterling fought to hold on to its gains for the most part of the week as a hawkish BOE and the Brexit deal announcement combined forces to lift the UK currency even with a couple of data misses. What’s next?

Medium-tier data dump (Mar. 29)

It’s a relatively light week for the pound as the only potential catalysts on deck will be out before the markets close on Friday. On Thursday’s London session, the U.K. will print its current account balance and possibly show a smaller deficit from the earlier 22.8 billion GBP.
The U.K. will also print its final GDP reading for Q4 2017 and no major revisions are eyed. Data on net lending to individuals is also due and this would serve as an indicator for consumer confidence and spending.

Last Week’s Price Review

The pound was the second strongest currency of the week, as of 2 pm GMT. And if the pound maintains its ranking until the end of the trading week, then that would mark the third consecutive week of net wins for the pound, and two consecutive weeks of being in second place (or being the first loser, whichever you prefer).

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

Before we move on, the pound got whupped only by the Loonie. And since GBP/CAD is an outlier, let’s remove it from the overlay to get this:

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

Having done that, we can see that the pound started the new trading week by surging higher.

Market analysts generally attributed the pound’s surge to the transition deal between the U.K. and the E.U. But as you can see in the overlay of GBP pairs, the pound already moved a lot ahead of the official announcement, even though there were no apparent catalysts.

I therefore noted in Monday’s morning London session recap that it would be more accurate to say that the pound was driven higher by speculation that there would be a transition deal, especially since there were already plenty of leaks and rumors ahead of the official presser.

Anyhow, follow-through buying after the official announcement was only limited. The pound even tumbled around two hours after the official announcement, likely because of profit-taking.

Dip demand became notable ahead of the U.K.’s CPI report, though, likely because of preemptive positioning.

Unfortunately for pound bulls, the U.K.’s February CPI reading came in at +0.4% month-on-month and +2.7% year-on-year, which are both below the market expectations. Worse, the annual 2.7% rise is below the BOE’s own +2.9% forecast.

As such, the pound got slapped lower on most pairs. However, dip demand was ever-present and the pound eventually steadied on most pairs, likely because the miss was not enough to derail expectations for a BOE rate hike this year, according to some market analysts.

The pound got a second wind come Wednesday, thanks to the U.K.’s latest jobs report. I think I did a good job in breaking down the jobs report in Wednesday’s London session recap, so read that if you want the details.

The main takeaway, though, is that regular earnings grew by 2.8% year-on-year, which is the best reading since July 2015 while real wages saw the first uptick after 11 consecutive months of declines.

Moving on, there was follow-through buying on most pairs but that began to abate ahead of the BOE statement.

Speaking of the BOE statement, the BOE voted to maintain its current monetary policy. However, Ian McCafferty and Michael Saunders voted for a rate hike, contrary to expectations for a unanimous vote to keep rates steady.

This caused the pound to spike higher as a knee-jerk reaction. However, sellers quickly attacked because the BOE didn’t really say anything new and even continued to stress that inflation will likely ease further that Brexit is still a source of risk for the U.K. economy, which point to only a gradual rise in the Bank Rate.

All was not lost for pound bulls, though, since the pound encountered a fresh wave of buyers on Friday, apparently as a reaction to this announcement, which likely eased Brexit-related fears:

I suppose one can say that easing Brexit-related fears were the main drivers for the pound’s good performance this week.