Can sterling hold on to its crown for this coming week? Here are the potential catalysts you need to watch out for.
More Brexit updates
Last time I checked, easing Brexit jitters have been lifting the pound’s spirits, most notably on Barnier’s remarks on how they’re “very close” to a Brexit deal.
Further confirmation in talks this week or from other Brexit officials could keep pound bulls hopeful that this uncertainty, particularly on U.K. businesses, might be lifted soon. The EU is said to be prepping a “super-charged” free trade deal but it remains to be seen if it will be acceptable to PM May and more conservative U.K. leaders.
U.K. monthly GDP (Oct. 10, 8:30 am GMT)
Some of the market attention could turn to economic developments as the U.K. will be printing its August monthly GDP reading. A feeble 0.1% expansion is expected, slower than the earlier 0.3% growth.
Components of the report should also shed some light on how various sectors are dealing with Brexit-related uncertainty. Note that there have been some wobbles in business indicators as of late, although the manufacturing industry has shown some signs of strength and may report a 0.1% rebound in production.
Last Week’s Price Review
The pound is currently the one currency to rule them all (as of 2 pm GMT), so the pound will soon be boasting its second week of net gains.
And pound bulls can thank easing Brexit-related concerns for the pound’s good run this week.
The pound was mostly range-bound on Monday and the U.K.’s better-than-expected manufacturing PMI report didn’t really have a noticeable effect on the pound’s price action.
The pound did react positively to a Bloomberg report which claimed that the U.K. is planning to compromise on the Irish border issue. However, buying pressure very quickly abated and the pound went back to trading sideways.
Anyhow, bearish pressure began to mount come Tuesday. And while the U.K.’s disappointing construction PMI report clearly caused the pound to drop sharply, price action also shows that the pound was already moving lower before the report was released.
And as noted in Tuesday’s London session recap, market analysts were attributing that to growing concerns that Theresa May’s Brexit plan is sowing division among the Conservative Party, which raises the odds that she may have to face a leadership challenge.
Fortunately for the pound, Boris Johnson called on his fellow Conservative Party Members to support Theresa May (after lambasting her Brexit plan), which probably eased concerns surrounding Theresa May’s leadership.
The pound then steadily climbed higher after that, but bears began to attack after U.K.’s services PMI report failed to impress and before Theresa May’s speech.
And when Theresa May finally spoke, the pound initially slipped before quickly moving back up, since Theresa May didn’t really say anything new and there were no signs of a leadership challenge against May. Follow-through buying was only limited, though, and the pound’s price action became more mixed after that.
The pound’s price action would become uniform again come Thursday. And as noted in Thursday’s London session recap (and as marked on the overlay of GBP pairs), the pound began to attract buyers after a report from The Financial Times cited an unnamed “senior Irish official involved in Brexit talks” as claiming that Ireland is supportive of British PM Theresa May’s plan of having “an all-UK customs union with the EU.”
And more bulls would come out later, thanks to a Reuters report that cited an unnamed “European Union source” as saying that Theresa May’s proposal for solving the Irish border issue is supposedly “a step in the right direction” and “make finding a compromise possible.”
And even more bulls would come out of the woodworks when another Reuters report was released on Friday, since the report claimed that the E.U. supposedly believes that a divorce deal with the U.K. is “very close”.
And the fun (for GBP bulls) doesn’t stop there since the pound was also apparently the main beneficiary when the Greenback weakened after the U.S. NFP report printed a lower-than-expected increase in non-farm jobs.