Pound traders could hold out until the preliminary GDP release by the end of this week, but earlier downbeat reports could keep bears in play.
U.K. preliminary GDP (Apr. 27, 1:30 pm GMT)
The main event for sterling might be the release of the U.K. preliminary GDP for Q2 on Friday’s London session. Analysts are expecting to see a 0.3% expansion, weaker than the earlier 0.4% growth figure.
Take note, however, that some of the major components have shown weakness recently, likely weighing on the overall reading for the period. In particular, the March retail sales reading came in waaay below expectations at a 1.2% decline versus the expected 0.5% dip.
BOE Guv’nah Carney’s speech (Apr. 27, 3:00 pm GMT)
Before the week comes to a close, BOE head honcho Carney is set to grab the mic and likely drop a few more policy hints and set the tone for longer-term pound price action.
In his speech last week, Carney already mentioned that the central bank has yet to discuss a precise timing for the next hike on account of “mixed data” and Brexit uncertainties. Scroll down below to read what else Carney had to say!
Last Week’s Price Review
The pound is currently on course to finishing as this week’s second biggest loser (as of 2 pm GMT), which is a rather bitter pill to swallow after two consecutive weeks of being a net winner.
And looking at the overlay of GBP pairs above, the pound actually had a very promising start on Monday. But as noted in Monday’s morning London session recap, there were no direct catalysts, so market analysts were pointing to an extension of last week’s theme, namely preemptive positioning ahead of the U.K.’s top-tier data on the expectation that they’ll reinforce expectations for a May BOE rate hike.
Sadly for rate hike junkies, the U.K.’s latest jobs report turned out to be a disappointment. Well, the jobs report was actually mixed, since the jobless rate fell to a 42-year low. However, traders were apparently more focused on wage growth and that unfortunately was a miss.
More bad news for rate hike junkes came when the U.K.’s March CPI report failed to meet the market’s expectations on Wednesday.
Worse, the 2.5% year-on-year increase in March is below the BOE’s own forecast that CPI will increase by 2.8%, as reported in the BOE’s February Inflation Report. And that really opened the gates for pound bears to charge in.
The pound also got a bearish kick when the U.K.’s retail sales report also ended up being a disappointment.
However, bulls quickly launched a counterattack and tried to push the pound higher. There was no direct catalysts, but as noted in Thursday’s London session recap, market analysts were citing a host of reasons, including seasonality, technicals, and bargain-buying since the pound’s drop is supposedly over-extended, given that the disappointing top-tier U.K. data were supposedly not enough to derail rate hike expectations.
In any case, the pound got another whupping when the U.S. session rolled around. And as noted in Thursday’s U.S. session recap, the pound’s slide was apparently in response to BOE Guv’nah Carney’s comments during a BBC interview.
As for specifics, Carney said that market players should “prepare for a few interest rate rises over the next few years.” However, Carney also said that:
“I don’t want to get too focused on the precise timing, it is more about the general path.”
In other words, the Guv’nah won’t commit to a May rate hike, which likely dampened rate hike expectations a bit.
Moreover, Carney also highlighted the “mixed data” which is a hint that the economy is not evolving as expected, further dampening expectations for a May rate hike. Moreover, Carney also talked about the uncertainties surrounding Brexit and said that (emphasis mine):
“I am sure there will be some differences of view but it is a view we will take in early May [at the next meeting of the Bank’s Monetary Policy Committee], conscious that there are other meetings over the course of this year.”
That comment heavily hints that a May BOE rate hike is not a done deal, which likely also helped to push the pound lower.
The pound finally found some respite on Friday, apparently because BOE MPC Member Michael Saunders’ speech appeared to contradict Carney’s not-so-hawkish tone since Saunders said that:
“I believe the economy no longer needs as much stimulus as previously.”
“Gradual does not imply that the MPC can only raise rates at a very low frequency, such as once per year. Nor does gradual mean that the MPC cannot tighten faster than markets price in.”
The damage was already done, though, and so the pound is a major loser this week.