Despite the Brexit drama and England’s dismal World Cup defeat, sterling managed to chalk up a mixed performance last week. Where will the upcoming catalysts take it, though?
BOE Guv’nah Carney’s testimony (July 17, 8:00 am GMT)
First up, we’ve got head honcho Carney’s speech, along with BOE Deputy Governor Jon Cunliffe’s testimony, on the Financial Stability Report before the Treasury Select Committee in Tuesday’s London session.
Now this report was released last month and Carney already gave an accompanying testimony then, so there might not be anything new in this upcoming one. Of course there was a slew of Brexit developments in between, so this could be incorporated in their remarks.
U.K. jobs data (July 17, 8:30 am GMT)
Pound price action could get a little bit more exciting with the jobs release on the same day as this would contain more clues on wage inflation.
But first, the claimant count change is expected to show a 2.3K increase in joblessness for June after previously falling by 7.7K. The unemployment rate is still expected to hold steady at 4.2% while the average earnings index could remain at 2.5% for the three-month period ending in May.
Higher than expected figures, particularly when it comes to wage growth, could fuel BOE tightening expectations as these could spill over to stronger price pressures and spending.
U.K. inflation reports (July 18, 8:30 am GMT)
On the subject of price pressures, the inflation reports also due this week could give a clearer picture of the situation and how it could influence BOE rate hike odds.
The headline CPI is projected to have climbed from 2.4% to 2.6% in June while the core reading likely held steady at 2.1%. Stronger than expected results could further fuel tightening hopes for the next BOE meeting.
If you recall, three members already voted to hike rates in last month’s decision, and it would only take a couple more policymakers to join the hawkish camp to lead to an actual move.
Underlying inflation reports such as PPI input and output prices, as well as the RPI and HPI, could also carry weight since these give hints on future price pressures.
U.K. retail sales (July 19, 8:30 am GMT)
Before the week comes to a close, the U.K. will also provide a snapshot of the consumer sector with the retail sales report for June. Analysts expect to see a slower 0.2% uptick versus the earlier 1.3% gain, possibly giving rise to speculations that higher prices are eating into spending habits.
Last Week’s Price Review
The pound is mixed for the week (as of 2 pm GMT). Despite the mixed performance, the pound wasn’t really that vulnerable to its peers since GBP pairs did have roughly uniform price action (except on Wednesday).
The pound started the week by gapping higher across the board, thanks to news over the weekend that Theresa May and her cabinet have agreed on a “collective” Brexit proposal.
Those gaps were quickly closed, however, when news hit the wires that Brexit Secretary David Davis resigned.
The pound eventually regained its footing and began to move up. And according to market analysts, that’s because Davis’ resignation would make a so-called “soft Brexit” more likely to come about, superseding concerns that Davis’ resignation might mean political trouble for Prime Minister Theresa May.
More GBP bulls came out to play during Monday’s morning London session. And as noted in Monday’s London session recap, that was apparently a bullish reaction to David Davis’ BBC interview since Davis reinforced the idea that his exit would make a so-called “soft Brexit” more likely.
Moreover, Davis tried to assuage the market when he encouraged Theresa May to stay on as Prime Minister, saying that ousting Theresa May now would be “the wrong thing to do.”
The pound’s rise was later cut short when word got around that Foreign Secretary Boris Johnson also resigned, which renewed fears that Theresa May may soon get booted out of office, causing the pound to tank hard.
A confidence vote against Theresa May failed to materialize, though, so the pound eventually found support as relief buying started.
The pound continued to recover on Tuesday since investors betting that Theresa May will survive the recent departures of her ministers, market analysts say. The pound’s recovery was temporarily stopped when the a bunch of mostly disappointing U.K. economic reports were released during the London session. Demand for the pound was ever-present, though, so the pound quickly recovered and continued to rise.
The pound’s price action became a mixed and messy come Wednesday. However, there was enough buying interest to keep most pound pairs above the previous week’s closing prices (dashed horizontal line).
Sadly for GBP bulls, selling pressure returned on Thursday, likely because of profit-taking ahead of the expected release of the British government’s White Paper.
And when the White Paper on The future relationship between the United Kingdom and the European Union was finally released, the pound encountered some buying pressure since the White Paper reinforced the idea that a so-called “soft Brexit” will be likely.
Buying pressure was limited, though, since the contents of the White Paper were mostly in-line with market expectations.
Also, the Greenback would regain its footing during the U.S. session, thanks to hawkish rhetoric from Fed officials, which may have sapped demand for the pound.
And to make matters worse, Trump was interviewed by The Sun who cited the Donald as saying the following about Theresa May’s recent actions:
“If they do a deal like that, we would be dealing with the European Union instead of dealing with the UK, so it will probably kill the deal.”
“It was not the deal that was in the referendum. I have just been hearing this over the last three days. I know they have had a lot of resignations. So a lot of people don’t like it.”
“If they do that, then their trade deal with the US will probably not be made.”
Feel the burn! Anyhow, it was downhill for the pound for a while after that.
The pound eventually found support on Friday, likely because of short-covering ahead of Trump’s press conference with British PM Theresa May.
And during the presser itself, Trump backtracked on his comments to The Sun about Theresa May’s proposals. For her part, Theresa May said that a post-Brexit trade deal between the U.K. and the U.S. is still possible, despite Trump’s comments to The Sun. They also heaped praises on one another.
Overall, a rather positive message from the two leaders, which probably helped to prop up as the pound as well.