Not even the BOE rate hike was enough to lift the pound’s spirits as Brexit jitters lingered. Can this week’s top-tier reports change the mood?
Preliminary Q2 GDP (Aug. 10, 8:30 am GMT)
Brace yourselves for the release of the U.K. economy’s quarterly report card this Friday! Analysts are expecting to see an improvement in performance, likely chalking up a 0.4% growth figure versus the earlier 0.2% expansion.
The monthly GDP for June will also be released then, and this might show a weaker 0.2% read compared to the previous 0.3% growth. Along with this, data on trade and manufacturing production are also due.
The goods trade balance for June is expected to show a smaller deficit of 11.9 billion GBP from the earlier 12.4 billion GBP shortfall, possibly reflecting stronger export activity. Manufacturing production, which accounts for 80% of total industrial activity, could see a 0.3% uptick in June.
Last Week’s Price Review
The pound is the second biggest loser of the week (as of 2 pm GMT), which is a repeat of last week’s performance and means that the pound is on track for a third week of net losses.
GBP pairs tossed and turned in a relatively uniform fashion in the run-up to the BOE statement.
However, most GBP pairs didn’t stray too far from last week’s closing prices (dashed horizontal line) and some pairs were even clearly range-bound. GBP/JPY is an obvious exception, though, but that has more to do with JPY weakness.
And when the BOE finally announced its latest monetary decision, the pound’s initial reaction was to spike higher since all BOE MPC members voted for a rate hike, which surprised the market since only 7 of the 9 MPC members were expected to vote for a hike.
Sellers quickly charged in, however. And as noted in Thursday’s London session recap, that’s likely because the BOE’s meeting minutes and Inflation Report both warned about Brexit and hinted at a slower tightening path.
Moreover, BOE Guv’nah Carney also warned about Brexit and blatantly stated that the BOE is not in a hurry to hike rates further when he said the following during the presser that shortly followed (emphasis mine):
“In this environment an ongoing limited and gradual tightening of monetary policy is likely to be required in order to return inflation sustainably to its target at a conventional horizon.”
“Limited because we think the structural factors that have pushed down the trend equilibrium real rate are likely to persist.”
“And gradual because we think the domestic short-term factors (particularly headwinds from uncertainty and fiscal drag) will fade slowly.”
“As a result, rates can be expected to rise gradually. Policy needs to walk, not run, to stand still as equilibrium rates rise gradually.”
Anyhow, the pound continued trading lower on most pairs before trading sideways when Friday rolled around.
The pound did get a final bearish kick at the start of Friday’s London session, though, apparently because of BOE Guv’nah Carney.
And as noted in Friday’s London session recap, Carney was interviewed by BBC radio and Carney had this to say:
“I think the possibility of a no deal [Brexit scenario] is uncomfortably high at this point.”
Carney did try to dial down his worried tone when also said that a “no deal” Brexit is “a relatively unlikely possibility.” Even so, Carney was quick to add that such a scenario still “is a possibility.”