Not even downbeat jobs data and resurfacing Brexit jitters were enough to dampen the pound’s spirits in the previous week. Can it keep holding its ground with major events lined up?
BOE Inflation Report hearings (May 22, 10:00 am GMT)
In the other week’s Super Thursday, the central bank released their Inflation Report, which contained updated forecasts on growth and inflation. This time, policymakers are slated to provide more insight on the recent changes made.
Recall that the BOE downgraded its GDP growth and inflation forecasts for 2018, as well as its inflation forecasts for 2019 and 2020. The Parliament’s Treasury Committee and market watchers are likely eager to learn about the factors that spurred these revisions, which might then shape future policy expectations.
U.K. CPI (May 23, 8:30 am GMT)
Inflation reports tend to be a big deal for the pound as traders are trying to guess when the next BOE hike might happen. However, the April report could keep these expectations in check as no change to the headline CPI reading at 2.5% is eyed.
The core version of the report could even tick down from 2.3% to 2.2% to reflect weaker price pressures. Producer input prices, on the other hand, could post a strong 1.1% rebound over the earlier 0.1% dip to signal stronger consumer inflation down the line.
BOE Governor Carney’s speech (May 24, 8:00 am GMT)
Head honcho Carney is scheduled to deliver opening remarks at the central bank’s Markets Forum meeting in London, so pound traders would likely keep their eyes and ears peeled for any monetary policy hints.
U.K. second GDP estimate (May 25, 8:30 am GMT)
Last but certainly not least is the revised version of the U.K. GDP for Q1 due on Friday, although most analysts aren’t really expecting to see any changes from the earlier 0.1% estimate.
Note that weak construction and manufacturing activity were mostly to blame for the not-so-impressive figure, which was actually the weakest growth rate since the last quarter of 2012. Any positive revisions, however, could revive tightening expectations and pound strength.
Last Week’s Price Review
The pound is currently on track to finishing the trading week in third place (as of 2 pm GMT), which would mark the second straight week of overall pound strength.
The pound’s price action was a bit messy, though, which is a sign that the pound may have been somewhat vulnerable to (and benefited from) opposing currency price action.
Anyhow, the pound also had a promising start like the euro, but as noted in Monday’s morning London session recap there were no apparent catalysts, although market analysts were pointing to preemptive positioning ahead of the U.K.’s jobs report, as well as the Greenback’s weakness.
The pound then steadily traded higher after that (except against USD) before getting hit by selling pressure ahead of the U.K.’s jobs report.
Speaking of the U.K.’s jobs report, that turned out to be mixed but with positive undertones for wage growth, which very likely helped to limit the pound’s slide and may even have helped to revive demand for the pound since the pound began to trend higher against everything (except CHF and USD) after the jobs report.
At any rate, the pound’s rally eventually ran out of steam and pound pairs were broadly tilting to the downside by Wednesday’s London session. There weren’t any clear catalysts for the pound’s retreat, but as pointed out in Wednesday’s London session recap, market analysts were attributing the pound’s weakness on Greenback strength and Brexit-related jitters.
The pound then jumped higher across the board on Thursday. And as noted in Thursday’s Asian session recap, that was due to a report from the Telegraph which claimed that the U.K. is supposedly ready to stay in the customs union with the E.U. once the transition deal ends.
The pound was later forced to take a step back, however, since a Reuters report was released that dismissed the claims made by the earlier Telegraph report.
And as it later turned out, the Reuters report was the accurate one since British PM Theresa May stated explicitly during the London session that:
“The United Kingdom will be leaving the customs union, we are leaving the European Union. Of course we will be negotiating future customs arrangements with the European Union and I have set three objectives; the government has three objectives in those.”
After sliding for a while, the pound began to turn in a more mixed performance before finding fresh sellers that sent the pound lower on Friday (except against CAD and EUR).
There were no fresh negative catalysts, but as noted in Friday’s London session recap, market analysts were pointing to lingering Brexit-related uncertainties as traders speculated on whether or not the U.K. will stay in a customs union once the transition period expires.