The British pound gapped up against most of its currency rivals to start the week as bulls seem to be cheering England’s performance in the World Cup and PM May’s “soft Brexit” plans.
U.K. monthly GDP (July 10, 8:30 am GMT)
Yep, the Brits will start printing their GDP on a monthly basis from now on! This upcoming release is for the month of May but will also contain data on previous months, providing better insight on how the economy fared throughout the earlier quarters.
Along with this, the U.K. will also release data on manufacturing and industrial production, as well as the goods trade balance.
Brexit issues are already causing quite a stir in pound price action to start the week, with the latest update being David Davis’ resignation. As it turned out, he wasn’t feeling very chipper about PM May’s “soft Brexit” concession and how this makes it less likely for the government to make the most out of Brexit.
Now makes the upcoming negotiations with the EU wee bit more complicated even after May’s impromptu meeting over the weekend resulted to a cabinet deal on a business-friendly Brexit plan.
With that, pound traders can probably expect a few more punches being thrown around in the coming days and PM May scrambling to sustain confidence in her government.
Last Week’s Price Review
The pound is on course to closing out the week in third place (as of 2 pm GMT), which would put an end to two straight weeks of net losses for the pound.
The pound was initially vulnerable to opposing currency price action since it had a mixed performance on Monday and Tuesday. In fact, there were clear instances of diverging price action, which highlights just how vulnerable the pound was to its peers back then.
There were actually top-tier reports at the time, namely the U.K.’s manufacturing PMI on Monday and the U.K.’s construction PMI on Tuesday. The headline reading for the former was within expectations, while the reading for the latter was better-than-expected. But as you can see in the overlay of GBP pairs above, the pound’s reaction to those top-tier reports were not really uniform.
The pound did eventually began to move in a roughly uniform manner when GBP pairs started to trend broadly on Wednesday.
And as marked on the chart above and as noted in Wednesday’s London session recap, that was due to the U.K.’s stronger-than-expected services PMI (55.1 vs. steady at 54.0 expected), which boosted expectations for an August BOE rate hike, market analysts say.
The stronger-than-expected services PMI reading apparently attracted follow-through buying since the pound steadily climbed higher after that without any fresh catalysts.
A fresh catalyst finally emerged on Thursday, namely BOE Guv’nah Carney’s cautiously hawkish speech. Carney’s speech was actually just a rehash of the BOE’s hawkish message during the June 21 BOE statement. Even so, market analysts were quick to point out that Carney’s speech supposedly reinforced expectations for an August BOE rate hike, which is probably why the pound continued its uphill trek on most pairs.
Sadly for pound bulls, the pound was pushed off a cliff during the U.S. session. In fact, the pound was very clearly the worst-performing currency during Thursday’s session. And that was apparently a bearish reaction to a Bloomberg report that cited unnamed sources who claimed that:
“Chancellor Angela Merkel’s government is unconvinced by U.K. Prime Minister Theresa May’s latest attempt at a compromise arrangement for customs after Brexit, seeing it as unworkable.”
There was little follow-through selling, though, so most GBP pairs quickly found support and began trading sideways before turning in a more mixed performance come Friday.
As to why interest on the pound appeared to fade, that’s probably because traders are sitting on the sidelines ahead of British PM Theresa May’s Brexit Cabinet meeting.