A couple of disappointing data points, combined with “no deal” Brexit fears, weighed heavily on sterling last week. Any chance for redemption this week?
Prime Minister May barely scraped by with the House of Commons vote on the Taxation (Cross-border Trade) Bill last week, keeping market watchers and BOE head honcho Carney himself wary of a “no deal” scenario.
Since there are no major economic reports lined up this week, all the attention could be fixed on debates involving the sticking points in the government’s game plan. Brexit Secretary Dominic Raab assured that a deal can be struck with the EU by the October deadline but that they’re still making preps for the possibility of none.
No. 10 herself has a busy schedule as she will be meeting with the Austrian chancellor, Czech prime minister and Estonian prime minister this week in order to rally up some support for their Brexit plans.
One more thing to watch out for is the Supreme Court decision on the Scottish bill, which basically determines whether or not EU laws could continue to be applied in the country, on July 24-25. Recall that Scotland voted to stay in the EU during the referendum, and a stronger push for autonomy could make Brexit matters a tad more complicated.
Last Week’s Price Review
The pound had a good run for two weeks straight, but that will soon end since the pound is currently THE biggest loser of the week (as of 2 pm GMT).
The pound initially tried to make its way up, but bears came out of the woods when the Parliamentary debates went underway and as word got around that Theresa May bowed to pressure from the pro-Brexit camp and signs of infighting among the Conservative Party showed, which raised expectations for a so-called “hard” Brexit, as well as highlighting the vulnerability of Theresa May’s grip on power.
Anyhow, Parliament ultimately voted in favor of Theresa May’s government on the Taxation (Cross-border Trade) Bill, but the decision didn’t have much of an effect on the pound’s price action.
The pound began to trade sideways for some time after that before encountering sellers again when BOE Guv’nah Carney testified before the Treasury Select Committee, likely because Carney warned about Brexit.
Carney also warned that a no-deal scenario would impact monetary policy when he said that:
“It would be a material event. I wouldn’t prejudge in which direction, though.”
However, the pound didn’t weaken too much since the U.K.’s jobs report showed some promising signs when it comes to wage growth, as noted in Tuesday’s London session recap.
Sadly for pound bulls,the Guardian reported that Labour will support the Tory rebels’ customs union amendment, which will keep the U.K. in a customs union after Brexit, which is seen as a direct challenge to Theresa May’s leadership.
And when the Parliamentary debates went underway, the pound initially tumbled when word got around that Theresa May’s government lost on the Trade Bill on the regulation of medicines after Brexit.
However, bulls later charged in when news broke that the government won on the customs union amendment, which likely eased fears that Theresa May’s leadership would be challenged.
Anyhow, the pound traded roughly sideways again before resuming its slide when the U.K.’s CPI report disappointed.
As for specifics, I noted in Wednesday’s London session recap that the CPI readings failed to meet the market expectations, but more importantly, CPI only rose by 2.4% year-on-year, which is below the BOE’s own forecast that CPI will increase by 2.5% in June, which likely dented expectations for a BOE rate hike.
After the drop due to the CPI report, the pound traded roughly sideways for a while before becoming more mixed but a net loser on Thursday. The pound was a net loser likely because of the Greenback’s strength and the disappointing June retail sales report. However, the pound was mixed on the day because the comdolls were broadly in retreat and the pound was able to score wins against them.
Anyhow, the pound would eventually trade sideways come Friday.