Brexit jitters came back to haunt the pound in the previous week and the CPI miss further dampened the U.K. economic outlook. Anything that could turn frowns upside down this week?
U.K. manufacturing PMI (June 1, 8:30 am GMT)
The only major economic release lined up from the U.K. this week is its manufacturing PMI due on Friday.
While this doesn’t usually spur a huge reaction from sterling pairs, it’s considered a leading indicator of economic health and its components contain clues on hiring and inflation trends.
Analysts are expecting to see a dip from 53.9 to 53.5 to reflect a slower pace of industry growth. If so, this would mark the sixth straight monthly decline for the index, reflecting a slowdown in the manufacturing sector.
Last Week’s Price Review
The pound is THE biggest loser of the week (as of 2 pm GMT) after two weeks of being a net winner.
The pound started the week by sliding across the board. There was no apparent reason for the pound’s weakness, but it’s possible that the pound’s slide was just a continuation of last’s Friday’s slide.
At any rate, the pound eventually steadied ahead of the BOE’s inflation report hearing before catching a bid when BOE MPC Member Gertjan Vlieghe testified before the Treasury Committee for his reappointment hearing since Vlieghe said that (emphasis mine):
“Provided the headwinds from Brexit uncertainty do not intensify in the near term, and ultimately fade over the coming years, I think policy rates are likely to rise, in my central view, by 25bp to 50bp per year over the forecast period.”
There was little follow-through buying, though, likely because BOE Guv’nah Carney and company didn’t provide any hawkish surprises during the BOE Inflation report hearing. Although it’s also possible that forex traders were just wary of positioning too heavily ahead of the U.K.’s CPI report.
Speaking of the CPI report, that caused the pound to tumble across the board since headline CPI only rose by 0.4% month-on-month (+0.5% expected). The year-on-year reading was also a miss since it only printed a 2.4% rise (+2.5% expected).
Interestingly enough, the +2.4% annual reading actually meets the BOE’s own forecast that CPI will increase by 2.4% in April, as reported in the BOE’s May Inflation Report. However, that wasn’t enough to dissuade GBP bears or comfort GBP bulls.
Anyhow, the pound eventually found support again and then jumped broadly higher when the U.K.’s retail sales report managed to beat expectations.
There was no follow-through buying, though, and most pound pairs even eventually began to tilt to the downside, despite the lack of negative catalysts.
However, some market analysts say that the pound’s slide was due to Greenback strength and speculation ahead of the second estimate for the U.K.’s Q1 GDP.
That does sound about right since the pound jumped higher when the U.K.’s Q1 GDP was left unchanged on Friday, which implies short-covering.
The details of the GDP report did show that consumer spending and business investment both continue to weaken on a quarterly and annual basis, though, which may be why the pound began to feel some selling pressure later (except against CAD and EUR).
Selling pressure later became more broad-based after the Office for National Statistics (ONS) released the following notice about a mistake in PPI calculation: