Sterling was pulled in opposite directions by Brexit developments and U.K. data, so the upcoming BOE statement could settle the score. What might happen?
BOE Statement & MPC minutes (June 21, 11:00 am GMT)
Rate hike hopes have been building up over the past few months, but the latest round of downbeat U.K. data dampened these expectations. With that, no actual policy changes are expected again.
Recall that U.K. trade figures disappointed, wage growth dipped, and inflation figures failed to impress last week. Consumer spending, on the other hand, beat consensus so there’s still reason for the central bank to be chipper.
Besides, a couple of hawkish MPC members are still slated to vote in favor of a rate hike, and any increase in this number could mean more gains for the pound. A change in their bias could bring more pound bears in, though.
Last Week’s Price Review
The pound had a good run this week and is on course to closing out the week in third place after overtaking the Kiwi (as of 2 pm GMT).
Despite the pound’s good run, most pound pairs were actually trading sideways during the week. This become clear if we remove GBP/USD from the overlay of GBP pairs.
As to why most GBP pairs were range-bound, there’s no clear reason for that, but it’s possible that market players are waiting for next week’s BOE statement.
Anyhow, most GBP pair may have been trading sideways, but there was a certain uniformity to the pound’s price action regardless.
The pound, for example, slumped broadly lower on Monday when the U.K. released a bunch of disappointing economic reports, namely a bigger-than-expected trade deficit, decline in total industrial out, and weaker construction output.
The pound then jumped broadly higher ahead of the U.K.’s jobs report. And as noted in Tuesday’s London session recap, market analysts were attributing that to short-covering ahead of the Parliamentary debate on the E.U. Withdrawal Bill.
The jobs report itself, mostly met the market’s expectations but wage growth painted a mixed picture, which is probably why it was a non-event.
As for the Parliamentary debate, that caused the pound to ease as the debate heated up. However the pound later shot up when the House of Commons voted in favor of the E.U. Withdrawal Bill, provided that lawmakers will be given a “meaningful’ vote” which is a victory for Theresa May’s government.
There was no follow-through buying, though, and the pound eventually started sliding back down.
The pound then got a final bearish kick when the U.K.’s inflation report was released, likely because the details of the report were not too upbeat, even though the readings were able to meet the market’s expectations.
After that, the pound steadied a bit and then became more mixed in the aftermath of the FOMC statement.
Thursday was no better since the pound delivered another mixed performance. The pound did jump higher across the board when the U.K.’s retail sales report surprised to the upside, but there was no follow-through buying and the pound’s price action became mixed again after broadly dipping a bit.
The pound’s price action became uniform again come Friday. And as noted in Friday’s London session recap, this was rather weird because there were no positive catalysts. Market analysts were also no help since they only pointed out that the pound was no the rise without really attributing a catalyst.
However, it’s possible that the pound broadly rose because of preemptive positioning and/or short-covering ahead of next week’s BOE statement. And on that note, make sure to keep an eye on the pound next week since there’s a good chance that the BOE may give the pound a volatility boost.