Got a bunch of top-tier economic releases from the U.K. this week, but my gut tells me that Brexit events will still hog the spotlight. Here’s what’s up!
Industry PMIs (starting Oct. 1)
It’s the start of a brand-new month, so y’all know the drill! The U.K. typically releases its latest batch of PMI readings during this time, providing good clues on how businesses might adjust to their economic outlook in the months ahead.
First up, we’ve got the manufacturing PMI due in today’s London session. Analysts expect the September reading to come in at 52.6, which is still reflective of industry expansion but a couple of notches below the earlier 52.8 figure.
Next is the construction PMI lined up for Tuesday’s London trading session, and this is projected to dip from 52.9 to 52.8 to also reflect a slower pace of industry expansion. Now pound pairs don’t usually have a strong reaction to this particular reading as the industry only accounts for a small part of overall economic performance.
Last but certainly not least is the services PMI on Wednesday’s London session, and this usually spurs the strongest reaction among the bunch since the sector accounts for majority of economic activity. The consensus is for a decline from 54.3 to 54.0, also reflecting slower industry growth.
Note that if all PMI readings do indicate a slowdown or even come in below expectations, pound traders might take this as confirmation that Brexit jitters are hurting businesses already, possibly pushing back tightening hopes.
Tory Party conference & PM May’s speech (Oct. 3, 10:00 am GMT)
The who’s who of the U.K. Conservative Party are currently gathered in their annual conference and it’s no surprise that the main topic for discussion is the Brexit deal (or no deal).
Tensions have already been running high since the first day of the conference over the weekend, and upcoming speeches from top officials are expected to highlight divisions within the party when it comes to their game plan.
So far, PM May has repeatedly expressed her belief in Brexit but emphasized her desire to deliver a deal that reflects the vote of the people. Her closing speech for the conference is widely expected to provide a bit more clarity on how they plan to proceed with negotiations and assure that the U.K. can withstand a “no deal” scenario.
Do watch out for remarks from the likes of Chancellor of the Exchequer Philip Hammond, Brexit Secretary Raab, Michael Gove, and Jeremy Wright as well.
Last Week’s Price Review
The pound is currently the third top-performing currency of the week (as of 2 pm GMT), which is a nice recovery after last Friday’s intense sell-off.
The pound caught a bid early on, thanks to Brexit Secretary Dominic Raab’s comments on Monday that:
“We’ll keep negotiating in good faith, I’m confident we’ll get there.”
Raab also tried to downplay the E.U.’s “stubborn” tone last week, saying that:
“These blips in the world, they’re blown a little bit out of proportion, but we double down, we don’t throw our toys out the pram, hold our nerve, keep our cool.”
More pound bulls then came out to play on Tuesday. There were no apparent catalysts, but as noted in Tuesday’s London session recap, market analysts were attributing the pound’s rise to growing hopes for a Brexit deal, with Raab’s comments still being cited as the reason.
The pound’s rally began to stall when Wednesday’s Asian session rolled around, but fresh bulls charged in during Wednesday’s European session and this tweet from E.U. Chief Brexit negotiator Barnier appears to be the reason.
Good meeting w/ @EESC_President. We are working for an orderly #Brexit and a new partnership that respects the UK's sovereignty, as well as the founding principles of the EU, such as the integrity of the single market. pic.twitter.com/VmwQg6kVNu
— Michel Barnier (@MichelBarnier) September 26, 2018
Buying pressure eventually abated ahead of the FOMC statement, though. And when the Fed finally announced its monetary policy decision, the pound’s price action became a chaotic mess for some time before finding buyers again during Thursday’s European session.
And as noted in Thursday’s morning London session recap, the pound found buyers when Barnier tweeted the following:
Good meeting w/ @MarotoReyes, Spanish Minister for Industry, Trade and Tourism. The EU continues to work for an orderly #Brexit and an ambitious future partnership with the UK that should include a close economic relationship. pic.twitter.com/bZsP4oDXNN
— Michel Barnier (@MichelBarnier) September 27, 2018
However, I also noted that the pound already caught a bid before Barnier’s tweet. No clear reason for that, though.
In any case, sellers would return when the U.S. session rolled around. And sellers then continued to kick the pound lower on Friday.
Market analysts attributed the pound’s slide during Thursday’s U.S. session on general demand for the Greenback (at the pound’s expense), as well as possible profit-taking ahead of next week’s Conservative Party Conference.
As for Friday’s slide, I noted in Friday’s morning London session recap that market analysts were attributing the pound’s slide to the U.K.’s downgraded year-on-year GDP growth reading.
However, profit-taking ahead of next week’s Conservative Party Conference is also a possible reason since the pound actually began moving lower before the GDP report was released.
With that said, the pound’s slide on Thursday and Friday were not enough to erase the pound’s earlier gains on most pairs, so the pound is currently on track to closing out the week as a net winner.