Can the pound regain its spot in the winners’ circle after a dismal performance? These upcoming catalysts might have some clues!
Industry PMIs (starting on Apr. 3, 9:30 am GMT)
The manufacturing, construction, and services sectors are all scheduled to post their PMI readings for March in the next few days, giving pound traders a better idea of how these industries have fared and could fare.
First off, we’ve got the manufacturing PMI on Tuesday’s London session and analysts are expecting to see a dip from 55.2 to 54.8 to reflect a slower pace of expansion. The construction PMI due the next day could also fall from 51.4 to 51.2 while the services PMI lined up for Thursday could retreat from 54.5 to 54.2.
Among these, the services PMI tends to have the strongest impact on the U.K. currency since this sector comprises majority of overall economic activity.
BOE Guv’nah Carney’s speech (Apr. 6, 4:15 pm GMT)
Market participants are trying to gauge when the next BOE interest rate hike might happen, and speeches from policymakers (or the central bank head, no less!) usually contain good clues.
Note that the latest BOE decision was a bit more on the hawkish end as a couple of MPC members voted to hike right there and then. Data points have been mixed, though, as wage growth and consumer spending impressed while CPI readings disappointed. This suggests that Carney’s speech could be a bit neutral, although any upbeat commentary could shore up the pound.
Last week’s price review
The pound was the second-worst performing currency of the past week, which means that the pound finally tasted the bitter taste of defeat after three consecutive week of net wins. Also, the pound’s losses were a reversal of fortune since the pound was the second top-performing currency last week.
The pound’s had a mixed start but buying pressure was quite notable. There were no direct catalysts, but some market analysts said that demand for the pound was likely driven by speculation that the BOE is still on track for a May rate hike.
The pound then steadied for a while before plunging rather hard on Tuesday, which is rather strange because there were no direct catalysts.
Well, the BOE’s Financial Policy Committee (FPC) released the minutes of their March 12 meeting. And while the FPC expressed their concern about Brexit, that’s not really new. Also, the pound started slumping about an hour before the minutes were released, so the minutes weren’t the likely trigger for the selloff.
Anyhow, nobody really knows for sure why the pound slumped as hard as it did. Although some market analysts did point to technicals and month-end / quarter-end flows for the pound’s slide. However, that doesn’t really answer why the pound slumped as hard as it did.
Still, that has been the narrative that stuck this week, with the broad-based selling pressure on Wednesday and Thursday also being blamed on month-end / quarter-end flows by market analysts.
A competing narrative (that was later quietly swept under the rug) was that the pound was supposedly dragged lower by the strong selling pressure on GBP/CHF. And GBP/CHF was, in turn, dragged down by news that British pharmaceutical company GlaxoSmithKline will buy Swiss pharmaceutical company Novartis’ stake in consumer health care.
Whatever really caused the pound to slide (month-end / quarter-end flow more likely), the fact still remains that the pound fared rather poorly during the past week.