Weekend gap alert! Is this as a sign that pound pairs are in for more losses throughout the week? Here’s what you should look out for.
With the clock winding down for the EU and the U.K. to come up with agreeable terms for their divorce, it’s no surprise that pound traders are keeping their eyes and ears peeled for Brexit-related headlines – so much so that even rumors and fake news can lead to noticeable moves!
The focus this week would likely be on whether or not PM May can get the backing of U.K. lawmakers for the Irish border backstop proposal, but the situation has been far from pretty. As of this writing, Transportation Minister Jo Johnson has resigned and many expect four more ministers to follow suit.
U.K. jobs data (Nov. 13, 8:30 am GMT)
Yep, the U.K. has its data dump lined up this week, too! Should sterling traders be able to take their eyes of Brexit for a few moments, these top-tier releases might also spur decent moves.
For the month of October, the number of claimants could be up 4.3K, a slower pace of increase compared to the earlier 18.5K jump in unemployment. This should be enough to keep the jobless rate steady at a cool 4.0%.
As in recent releases, the average earnings figure could also carry some weight as wage inflation contributes to overall price pressures. For the three-month period ending in September, the figure likely climbed from 2.7% to 3.0%.
U.K. inflation reports (Nov. 14, 8:30 am GMT)
By the middle of the week, pound traders would get a better glimpse of the inflation situation as the U.K. prints its headline CPI, core CPI, PPI input and output, HPI, and RPI. Phew!
Among these, the first two figures tend to garner the most attention. Headline CPI is projected to tick higher from 2.4% to 2.5% while the core version could hold steady at 1.9%. Weaker than expected results, however, could further dampen BOE tightening hopes amid Brexit uncertainties.
U.K. retail sales (Nov. 15, 8:30 am GMT)
Last but certainly not least is the U.K. retail sales report lined up on Thursday’s London session. While this doesn’t generally trigger a strong price reaction, it’s still worth watching since consumer spending accounts for a huge chunk of overall growth.
Analysts expect retail sales to have increased by a meager 0.1%, which would still be an improvement over the earlier 0.8% decline. Another negative read, however, could signal slower GDP figures down the line.
Last Week’s Price Review
The pound outpaced the Aussie and is now the second top-performing currency of the week (as of 3 pm GMT).
The pound started the week by gapping higher across the board thanks to rumors over the weekend that an all U.K. customs union is in the works.
Theresa May’s office shot down the rumor, though. Also, the rumor is not really new since The Financial Times already reported on that, as noted in last week’s GBP recap.
Anyhow, sellers tried to close the gaps on GBP pairs. Buying pressure was ever-present, though. However, bears temporarily got the upper hand when European Commission spokesman Margaritis Schinas gave a reality check on the state of Brexit talks.
Fortunately for GBP bulls, Irish Taoisech Leo Varadkar softened his tone when his released the following statement (emphasis mine):
“Both leaders emphasised their commitment to avoiding a hard border and the need for a legally operable backstop.”
“The Prime Minister raised the possibility of a review mechanism for the backstop. The Taoiseach indicated an openness to consider proposals for a review, provided that it was clear that the outcome of any such review could not involve a unilateral decision to end the backstop.”
“They both expressed the hope that the negotiations could conclude in a satisfactory manner as soon as possible.”
Anyhow, Brexit-related optimism (and USD weakness) carried the pound higher after that.
There were some negative Brexit-related updates on Wednesday, which caused the pound to stumble a bit.
However, the tweet below about Brexit Secretary Raab allowed the pound to regain its footing.
‘Thumbs up’ – says Raab on his way out of cabinet
— Laura Kuenssberg (@bbclaurak) November 6, 2018
And to give that tweet some context, Brexit Secretary Raab was meeting with British PM Theresa May in order to try and iron out a solution to the persistent Irish border issue. And apparently, that tweet was interpreted by the market as a sign that some progress was made.
Moving on, Brexit-related optimism was sustained during Tuesday’s U.S. session, thanks to some positive Brexit-related rumors.
The pound’s rally would finally run out of steam come Wednesday, though. Also, the pound’s price action became more mixed as the Greenback began flexing its muscles. Dip demand for the pound was ever-present, though.
However, it later became apparent that sellers have returned to torment the pound during Thursday’s London session, likely because of fading optimism for a Brexit deal since British Foreign Minister Jeremy Hunt quipped that a Brexit deal by next week is “probably pushing it.”
There were also reports at the time that May’s crunch cabinet meeting over Brexit will be delayed until next week.
Also, Hunt wasn’t the only British official expressing doubt about an imminent Brexit deal since a bunch of other British officials (and some E.U. officials) were also saying similar things, which likely dampened demand for the pound even further.
GBP bulls tried to buy up the pound again, but were forced to beat a hasty retreat when The Times leaked excerpts of a letter from Theresa May to Northern Ireland’s DUP (the Conservative Party’s ally).
You see there has been a narrative since last week that the E.U. is offering an all-U.K. customs union to finally surmount the Irish border issue.
However, the leaked letter revealed that:
“They want to maintain a Northern Ireland-only ‘backstop to the backstop’ in case the future negotiations are unsuccessful.”
“I am clear that I could not accept there being any circumstances or conditions in which that ‘backstop to the backstop’, which would break up the UK customs territory, could come into force.”
“That is why it is critical that the provision for a UK-EU joint customs territory is legally binding in the Withdrawal Agreement itself, so that no ‘backstop to a backstop’ is required.”
And to make matters worse, DUP Party MP Sammy Wilson accused British PM Theresa May of “total betrayal” after the letter was leaked, which implies that the letter was the real deal.
Brexit: PM's 'total betrayal' amid DUP anger at backstop plan https://t.co/gZAcYNd40O
— Sky News Politics (@SkyNewsPolitics) November 9, 2018
Worse still, Arlene Foster, the leader of the DUP also affirmed the leaked letter on Friday, which added to the pound’s pain.
The PM’s letter raises alarm bells for those who value the integrity of our precious union & for those who want a proper Brexit for the whole UK. From her letter, it appears the PM is wedded to the idea of a border down the Irish Sea with NI in the EU SM regulatory regime. https://t.co/qN6c41zx7U
— Arlene Foster (@DUPleader) November 9, 2018
Fortunately for the pound, the U.K.’s Q3 GDP report was positive overall, so the pound finally got a chance to lick its wounds.