A number of top-tier releases are lined up from the U.K. economy this week, but it looks like Brexit will steal the show with the “meaningful vote” coming up.
U.K. monthly GDP and manufacturing production (Dec. 10, 9:30 am GMT)
To get the ball rolling, the U.K. will print its October monthly GDP and give traders an idea of how much momentum the economy is working with to start the last quarter of the year.
Number-crunchers expect to see a meager 0.1% expansion, which would already be an improvement from the previous month’s flat figure. This release will be accompanied by the manufacturing production report, which might show no growth for October after posting a 0.2% uptick earlier on.
U.K. jobs data (Dec. 11, 9:30 am GMT)
Next up, the claimant count change, unemployment rate and average earnings index are all due on Tuesday, ahead of the fireworks in parliament. But because there’s a bigger event lined up, pound traders might simply take a quick look at these jobs figures but refrain from placing any big bets.
For the month of November, the number of claimants is expected to have increased by 13.2K, a slower rise in joblessness compared to the earlier 20.2K gain. The unemployment rate for the period ending in October likely stayed unchanged at 4.1% while the three-month rolling average of wage changes likely didn’t budge from 3.0% either.
U.K. parliament Brexit vote (Dec. 11)
Time to grab your popcorn, ladies and gents! Maybe add a cup of tea and some pillows, too, because it’s gonna be one long day watching the drama unfold in parliament.
So far it’s not looking so good for PM May’s camp as the opposition for the EU-approved draft transition deal has been really strong, so it doesn’t seem likely that they could gather 320 votes in favor. But with this scenario already widely anticipated for quite some time, there could be room for a buy-the-rumor-sell-the-news situation.
Some even suggested that the government might decide to bypass parliament in revoking Article 50 – something that the ECJ confirmed would not need additional legislation. Failing to get enough votes to approve the deal could put the Brexit team back to the drawing board in an attempt to amend the deal, but the bigger risk might be a no-confidence vote in PM May’s leadership.
Last Week’s Price Review
The pound is currently mixed but a net winner (as of 3 pm GMT). However, the day is far from over and the pound’s only winning out against the Greenback and the Loonie by a razor-thin margin, so the pound may still end up on the losing side.
There were some top-tier reports this week, including the U.K.’s PMI report. However, they didn’t really have any noticeable impact on the pound’s price action.
Instead, Brexit-related news were the main drivers of the pound’s price action. And the pound is currently a net winner for the week, likely because of growing hopes that Brexit may be reversed because of what transpired this week. However, the pound’s early slide really hurt the pound’s performance.
The pound had a mixed start, but got whupped rather hard during Monday’s London session.
There were no apparent catalysts for the pound at the time, but some market analysts were pointing to Brexit-related jitters ahead of next week’s Parliamentary vote on Theresa May’s Brexit deal.
The pound would later find buyers during Monday’s U.S. session, however, probably because the pound was feeding off the Greenback’s weakness at the time due to fears that the U.S. may go into a recession because of the yield curve inversion of some U.S. bonds.
Selling pressure was apparent, however, since most GBP pairs would later begin to tilt slightly to the downside.
Fortunately for GBP bulls, Manuel Campos Sánchez-Bordona, Advocate General of the European Court of Justice (ECJ), released an advisory opinion during Tuesday’s London session and he had this to say:
“[T]he Advocate General proposes that the Court of Justice should, in its future judgment, declare that Article 50 TEU allows the unilateral revocation of the notification of the intention to withdraw from the EU, until such time as the withdrawal agreement is formally concluded, provided that the revocation has been decided upon in accordance with the Member State’s constitutional requirements, is formally notified to the European Council and does not involve an abusive practice.”
“The Advocate General rejects the contention that Article 50 TEU only allows the possibility, put forward by the Commission and the Council, of a revocation following a unanimous decision of the European Council. In his opinion, a revocation by mutual consent of the departing Member State which changes its position and the EU institutions with which it is negotiating its withdrawal is possible. However, this would not prejudice unilateral revocation, which the departing Member State always maintains under Article 50 TEU.”
In simpler terms, the Advocate General is recommending that the ECJ should allow the U.K. to unilateral reverse Brexit, which naturally made the anti-Brexit people happy.
However, follow-through buying was only limited and the pound eventually began to turn lower, likely because of profit-taking ahead of Parliament’s meeting, although Greenback strength may have also helped in kicking the pound lower.
And when Parliament finally met, they declared that Theresa May’s government was in contempt of Parliament and was therefore ordered to release the full legal advice on her Brexit deal.
This caused the pound to slump hard as a knee-jerk reaction, but buyers quickly jumped in.
And eventually, buyers began to win out, likely because of preemptive buying, since the pound began to trade higher as traders waited for the full legal advice to be released.
And when the Brexit legal advice was finally released during Wednesday’s London session, it revealed that:
“[D]espite statements in the protocol that it is not intended to be permanent, and the clear intention of the parties that it should be replaced by alternative, permanent arrangements, in international law the Protocol would endure indefinitely until a superseding agreement took its place, in whole or in part, as set out therein. Further, the Withdrawal Agreement cannot provide a legal means of compelling the EU to conclude such an agreement.”
“In the absence of a right of termination, there is a legal risk that the United Kingdom might become subject to protracted and repeating rounds of negotiations.”
In other words, the backstop solution to the Irish border issue does seem to be a way to (intentionally or unintentionally) keep the U.K. within the E.U. and/or extend the Brexit process, thereby confirming the concerns of pro-Brexit critics of Theresa May’s deal.
Anyhow, the release of the Brexit legal advice likely prompted some profit-taking, but selling pressure eventually abated and the pound’s price action became more mixed.
GBP bulls would later get their second win during Thursday’s London session, though, apparently because of growing hopes that Brexit may be reversed since British PM Theresa May said the following during a BBC interview (emphasis mine):
“There are three options: one is to leave the European Union with a deal… the other two are that we leave without a deal or that we have no Brexit at all.”
And while May was being interviewed, this announcement came out. And remember, the ECJ’s Advocate General recommends that the U.K. should be allowed to unilaterally reverse Brexit.
The judgment in the Article 50 case will be issued at 9am Luxembourg time on 10 December 2018.
— Jo Maugham QC (@JolyonMaugham) December 6, 2018
The pound then happily traded higher on most pairs for several hours after that before becoming more range-bound come Friday.
And while the pound may seem like it was a secondary victim of the disappointing U.S. NFP report, that probably had more to do with opposing currency price action since the NFP report fueled risk aversion, which pushed the yen and Swissy higher.
At the same time, the NFP report also caused the Greenback to weaken, which benefited the euro, the Kiwi, and the Aussie more.