A more hawkish BOE tilt lifted the pound late in the week, and the impact on the pound from this shift in stance could carry on this time.
BOE Financial Stability Report (June 27, 8:30 am GMT)
By the middle of this week, the U.K. central bank will print its report assessing financial conditions and potential risks to stability (cough, Brexit, cough). Now this is released only twice per year, so it could generate a pretty strong reaction from pound pairs!
Note that the BOE had a slightly more hawkish stance in their latest policy statement, so this optimism could be reflected in their Financial Stability Report. Also, head honcho Carney will be holding a presser in connection to this release, which means y’all better stay on the lookout for questions on tightening.
U.K. final GDP (June 29, 8:30 am GMT)
Before the week comes to a close, the U.K. could have a few more fireworks lined up as it prints the final GDP reading for Q1, along with the current account balance and net lending to individuals figure.
No revisions to the first quarter GDP growth of 0.1% are expected, so this might turn out to be a dud after all. However, any major changes or surprises in the accompanying reports could either support or downplay BOE tightening hopes.
Last Week’s Price Review
The pound is turning in a mixed performance this week (as of 2 pm GMT). However, that doesn’t mean that the pound was just being pushed around by its peers.
Pound pairs had a steady start. Sellers were ever-present, though, pushing most GBP pairs below last week’s closing prices (dashed horizontal line). And market analysts blamed that on GBP bulls unwinding their positions ahead of the BOE statement.
Selling pressure on the pound became even more apparent come Tuesday. There were an direct catalysts for the pound’s weakness, but as noted in Tuesday’s London session recap, it’s possible that traders were continuing to unwind their positions ahead of the BOE statement.
It’s also possible that the pound was weighed down by Brexit-related jitters ahead of the vote on the amended E.U. Withdrawal Bill in the House of Commons since the House of Lords voted to support the “meaningful vote” amendment to the E.U. Withdrawal Bill on Monday, which was seen as a defeat for and a direct challenge to Theresa May’s leadership. Although it’s worth pointing out that the pound barely budged when the Lords voted against Theresa May.
At any rate, the pound steadied after that before finding buyers when MPs at the House of Commons began voting on the amended E.U. Withdrawal Bill, then getting a final bullish push when MPs voted in favor of Theresa May’s government.
Follow-through buying was limited, though, and pound pairs eventually began to tilt to the downside as the BOE statement loomed.
And when the BOE finally released its monetary policy statement, the pound surged higher on the revelation that BOE Chief Economist Andy Haldane joined Ian McCafferty and Michael Saunders in voting for a rate hike then and there, which likely raised expectations that the BOE may raise the Bank Rate come August.
The BOE also noted that “the MPC now intends not to reduce the stock of purchased assets until Bank Rate reaches around 1.5%, compared to the previous guidance of around 2%,” which means that the BOE may start unwinding its balance sheet at an earlier pace, which is another hawkish message.
Anyhow, the pound kept climbing broadly higher for a few hours after that before becoming more mixed. And according to some market analysts, that’s because Brexit-related fears capped the pound’s gains as traders shifted their attention towards next week’s E.U. summit.