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Positive Brexit developments kept sterling in good spirits last week, but most pound pairs gapped down over the weekend. What’s up with that?

Could it be profit-taking ahead of this week’s top-tier events?

U.K. industry PMIs (starting Sept. 3, 8:30 am GMT)

Brace yourselves, pound traders! The U.K. economy will be the latest report cards on the manufacturing, construction, and services sector this week. Now these readings have been more or less edging lower in the past three months, reflecting a slower pace of expansion, so traders are keen to find out if this trend continued.

First up is the manufacturing PMI for August, which is expected to tick down a notch from 54.0 to 53.9. Next, the construction PMI due the next day could indicate an even sharper drop from 55.8 to 54.9.

The services PMI due Sept. 5, 8:30 am GMT might have the biggest impact among the three since this sector comprises a huge chunk of overall U.K. economic activity. This reading is slated to advance from 53.5 to 53.9, so there may still be a chance for a rally if it does meet or beat expectations.

BOE Inflation Report hearings (Sept. 4, 12:15 pm GMT)

Of course the Inflation Report hearings on Tuesday’s London session could put the figures in their proper context as BOE policymakers share their thoughts on the economy in front of the Parliament’s Treasury Committee.

Lawmakers and market watchers are likely to keep their ears peeled for any remarks concerning a “no deal” Brexit situation, especially since last week’s Brexit developments have been noteworthy.

Last time I checked, though, EU chief negotiator Barnier clarified that he is “strongly opposed” to parts of U.K. PM May’s Brexit plan, which might explain why pound pairs are starting off on the back foot.

Anyway, any indication that these uncertainties might impact policymakers’ inflation forecasts and therefore tightening timeline could keep the pound’s gains in check. On the flip side, hawkish comments signaling room for more hikes this year could allow sterling to resume the climb.

Last Week’s Price Review

The pound is turning in another good performance since it’s currently in second place (as of 2 pm GMT).

Overlay of GBP Pairs: 1-Hour Forex Chart
Overlay of GBP Pairs: 1-Hour Forex Chart

The pound had a steady start was but rushed by sellers and was the worst-performing currency during Tuesday’s U.S. session. Aside from Greenback strength, there wasn’t really any apparent catalysts, however.

Some market analysts tried to pin the pound’s weakness to Theresa May’s comment that a no-deal Brexit “wouldn’t be a walk in the park,” while also saying that such a scenario “wouldn’t be the end of the world.”

However, price action very clearly shows that the pound got whupped several hours after Theresa May delivered her comments. So if the pound’s weakness was indeed due to the comments (as some market analysts say), then the pound’s slide is a very delayed reaction.

In any case, the pound began to creep back up during Wednesday’s London session. And as noted in Wednesday’s London session recap there were no apparent catalysts, but I conjectured that the pound’s rise may have been due to short-covering ahead of Brexit Secretary Dominic Raab’s speech before Parliament later and after the pound got a pounding on Tuesday.

And when Raab finally spoke during Wednesday’s U.S. session, the pound found even more buyers, likely because of Raab’s assurance that he is “confident that a {Brexit} deal is within our sights.”

However, what really drove GBP bulls into a frenzied rampage was E.U. Chief Brexit Negotiator Michel Barnier’s conciliatory comment after Raab’s speech that:

“We are prepared to offer Britain a partnership such as there never has been with any other third country.”

Anyhow, the pound continued to steadily trend higher after the initial jump but began to find sellers on Thursday. And as noted in Thursday’s London session recap, the first wave of sellers attacked when Barnier stressed during an interview that the E.U. must be prepared for other possible scenarios, and “That includes the no-deal scenario.”

Barnier also basically said that the market misinterpreted his earlier comments when he said that  

“We have been willing to form a strong relationship from the beginning.”

“Twenty-seven heads of state and government, including Angela Merkel and the French president and other heads of state, have proposed a unique partnership with the United Kingdom.”

After that, another wave of sellers attacked the pound when German Finance Minister and Vice Chancellor Olaf Scholz essentially repeated Barnier’s warning that a Brexit deal is not a sure thing, which is why he encourages companies to prepare for a possible “no deal” Brexit scenario.

Selling pressure on the pound was only limited, however. And the pound’s price action became more mixed after that, while still trading above last week’s closing prices (except on GBP/CHF). And so the pound’s on track for another net win this week.

Oh, and if you’re wondering how Brexit talks fared this week, well, talks ended without reaching a compromise on the Irish border issue on Friday.