U.K. jobs data (May 16, 9:30 am GMT)
Last Week’s Price Review
After three consecutive weeks of net losses, the pound is finally on track to ending the week on the winning side (as of 2 pm GMT), despite the plunge in the wake of the BOE statement.
The spotlight has been on the BOE statement this week. But looking at the overlay of GBP pairs above while noting last week’s closing prices (dashed horizontal line), we can see that the pound actually had a good run in the days ahead of the BOE statement.
In fact, the pound was THE best-performing currency of the week on Wednesday, the day before the BOE statement.
There were growing expectations that peers at the House of Lords will vote in favor of amendments that will give Parliament the power to block the government from leaving the E.U. without a deal, which increases the chance for a so-called “soft” Brexit.
And we now know that the House of Lords did vote to pass the amendments. And that likely helped to ease Brexit-related jitters and keep the pound supported.
However, it’s also possible that the pound’s pre-BOE rally may have been due to short-covering by pound bears. After all, the pound has been a net loser for three consecutive weeks.
In any case, the pound was forced to erase some of its gains when the BOE failed to provide any hawkish surprises on Thursday.
Sure, Ian McCafferty and Michael Saunders voted for a rate hike again, but that was widely expected. The BOE also maintained its hiking bias, but that was also widely expected.
And while the BOE’s decision to downgrade its inflation and growth forecasts was also widely expected, that may have helped to push the pound lower.
Fortunately for pound bulls, BOE Guv’nah Mark Carney was interviewed by the BBC during Thursday’s U.S. session. And Carney said that:
“It’s likely over the course of the next year rates will go up… that’s the most likely thing to happen.”
That hawkish comment likely helped to resurrect rate hike expectations since the pound’s bleeding finally stopped and the pound even began to claw its way back up against most of its peers.