Brexit was the main theme for pound price action last week, and headlines on this matter could continue to call the shots in the days ahead. Still, there are a couple of major economic reports to watch out for.
U.K. inflation reports (Sept. 19, 8:30 am GMT)
Since price stability plays a huge role in influencing how central banks set interest rates, traders usually keep close tabs on inflation data to gauge if any policy adjustments might be announced soon.
During Wednesday’s London trading session, the U.K. will print its headline and core CPI readings for the month of August. Number crunchers predict the former could dip from 2.5% to 2.4% while the latter could also fall from 1.9% to 1.8%, easing pressure on the BOE to hike again.
Underlying inflation data are also up for release then, namely PPI, HPI, and RPI. Before I lose y’all with these acronyms, these simply stand for price indices from producers, housing, and raw materials. As such, these provide good clues for how much cost pressures might be felt by consumers down the line.
Just keep in mind that stronger than expected inflation figures or expectations could fuel BOE tightening hopes, which tend to be pound bullish. On the other hand, downbeat results could dampen expectations of a hike, which might keep a lid on the pound’s gains.
U.K. retail sales (Sept. 20, 8:30 am GMT)
Next up, we’ve got the indicator of consumer spending due on Thursday’s London session. The consensus is for a 0.1% dip in retail sales for August, erasing part of the earlier 0.7% uptick.
Employment and wages have been stronger than expected, however, so there might still be a chance that Brits were in a spending mood last month. Also, a survey of payments conducted by Visa revealed that consumer spending picked up in the three months ending in August, based on debit and credit card usage.
If you’re trading any of the pound pairs this week, just make sure you stay on your toes and be quick to make any necessary adjustments as remarks from top officials tend to spur big moves.
Word in West End is that London mayor Khan has called for a second Brexit referendum as the U.K. government’s fumbles could put the country on a damaging path. So far, no major reaction sterling as traders appeared to be more reactive to positive updates.
Also note that EU leaders will be meeting in a summit in Salzburg starting Thursday, and Brexit is expected to be the main topic on the table. What most market participants might be interested to find out is whether or not the rumored special Brexit summit in November would be confirmed.
Apart from that, comments from EU officials should also give forex junkies a better idea of how negotiations are going and the odds of a “no deal” situation.
Last Week’s Price Review
The pound will soon be marking its fourth consecutive week of net wins since the pound is currently the one currency to rule them all (as of 2 pm GMT).
And as usual, easing Brexit-related uncertainty was the main driver for the pound’s bullish run, although the BOE statement appears to have helped as well.
The pound caught an early bid during Monday’s morning London session, apparently because of net positive U.K. data, including a stronger-than-expected GDP growth reading.
However, buying pressure would really ramp up during Monday’s U.S. session, thanks to E.U. Chief Brexit Negotiator Michel Barnier’s comment that:
“I think that if we are realistic we are able to reach an agreement on the first stage of this negotiation which is the Brexit treaty within six or eight weeks.”
And there was apparently follow-through buying since most GBP pairs continued to trend higher after the bullish knee-jerk reaction.
However, it’s also possible that market players were opening preemptive positions ahead of the U.K.’s jobs report because, as discussed in Tuesday’s London session recap, the U.K.’s jobs report was actually net positive, particularly with regard to wage growth.
But as you can see on the overlay of GBP pairs, the pound tanked in the wake of the jobs report.
In any case, selling pressure after the U.K.’s jobs report was only limited and most GBP pairs traded roughly sideways for a while before trying to jump higher when European Commission President Jean-Claude Juncker said that:
“The United Kingdom will never be an ordinary third country for us. The United Kingdom will always be a very close neighbour and partner in political, economic and security terms.”
However, the pound’s would-be rally was cut short since Juncker would also later reiterate the E.U.’s position that the Irish border issue is a major sticking point, while also taking pot shots against Theresa May’s Brexit proposals, particularly on the future trade deal.
Sellers would finally win out later when Former Brexit Secretary David Davis said during an interview that:
“It was precisely for this response that I instructed the [Brexit Department] to prepare the alternative free trade-plus deal to be ready to go if Chequers does not fly.”
Davis was referring to Juncker’s earlier comments against Theresa May’s proposals (a.k.a. “Chequers” proposals).
Anyhow, the pound would steadily trend lower on most pairs before finally tilting broadly higher ahead of the BOE statement, likely because of preemptive positioning and/or short covering, since the pound had a negative bearish reaction to the BOE statement, even though the BOE retained its hiking bias.
The damage was only limited, though, and the pound quickly regained its footing and began marching higher (except against the euro).
After that, the pound traded mostly sideways. It did get a slapped lower on Friday, when the Financial Times released a report about Labour’s plan to vote against Theresa May’s Brexit deal, as well as plans to oust Theresa May from power.
However, Brexit Secretary Dominic Raab came to rescue the pound when he announced this positive Brexit-related news:
“While there remain some substantive differences we need to resolve, it is clear our teams are closing in on workable solutions to the outstanding issues in the Withdrawal Agreement, and are having productive discussions in the right spirit on the future relationship.”