The pound is mixed but a net winner for the week (as of 3 pm GMT), which is an improvement since the pound limped to the finish line in last place last week.
Despite lots of top-tier reports this week, the pound’s price action was rather messy, especially after the FOMC statement.
With that said, the pound did show somewhat uniform price action before the FOMC statement.
And the pound showed uniform price action when it uniformly traded higher during Tuesday’s London session. There were no direct catalysts for the pound’s strength, but market analysts were attributing the pound’s rise to the Greenback’s weakness at the time, as well as growing hopes that a no-deal Brexit will be avoided and cautious Brexit-related optimism after Theresa May confirmed that Parliament will vote on her Brexit deal by mid-January.
Interestingly enough, the pound didn’t really react much to May’s speech during Monday’s U.S. session.
Anyhow, the Greenback was able to recover during Tuesday’s U.S. session, so the pound returned some of its gains and then began trading sideways on most pairs.
There were signs of bearish pressure ahead of the U.K.’s CPI report, though. And when the U.K.’s CPI report was released, well, the pound barely reacted since the readings were within expectations.
But as pointed out in Wednesday’s London session recap, the details of the report were not too good and the annual rise of 2.3% is below the BOE’s forecast of +2.5% in November, as laid out in the BOE’s November 2018 Inflation Report. And that’s probably why pound eventually resumed its slide.
However, the pound suddenly jumped broadly higher at around 2:00 pm GMT during Wednesday’s U.S. session, which is a bit odd since the only available catalyst at the time was Juncker’s speech and Juncker was saying that:
“The risks of a disorderly exit of Great Britain from the European Union are clear. It would be an absolute catastrophe.”
The European Commission also released its plans for a no-deal Brexit at around that time, and the gist of it is that the E.U. plans to offer temporary continuity to limit the damage from a no-deal Brexit.
However, the document also flat out stated that:
“These measures will not – and cannot – mitigate the overall impact of a ‘no-deal’ scenario, nor do they in any way compensate for the lack of stakeholder preparedness or replicate the full benefits of EU membership or the terms of any transition period, as provided for in the Withdrawal Agreement.”
Anyhow, it’s kinda odd that the pound reacted positively to those not-so-upbeat Brexit-related updates. However, it’s possible that the market interpreted those updates as reinforcing the idea that the E.U. and U.K. need to work together in order to avoid a no-deal Brexit.
In any case, buying pressure on the pound was only limited and the pound’s price action even became mixed in the wake of the FOMC statement, which implies that the pound became vulnerable to opposing currency price action.
The pound’s price action was still mixed come Thursday, and GBP pairs even showed clearly diverging price action, so the pound was apparently still vulnerable to its peers.
The pound had two top-tier events at the time, namely the U.K.’s retail sales report and the BOE statement. But as price action clearly shows, the pound didn’t really have a uniform reaction to the stronger-than-expected increase in retail sales volume, and the same can be said of the BOE statement.
The retail sales report was actually not that great since the report implied that the boost in retail sales may be temporary since:
“Retailers reported strong growth on the month due to Black Friday promotions in November, which continues the shifting pattern in consumer spending to sales occurring earlier in the year.”
As for the BOE statement, well, the BOE maintained its current monetary policy, downgraded its growth and inflation forecasts, and kept its neutral, wait-and-see stance because of Brexit. Basically, the BOE’s action were all within expectations, which is likely why the BOE statement failed to trigger a uniform reaction.
Anyhow, GBP pairs continued to present diverging price action after that, but became somewhat uniform again on Friday since GBP pairs (except GBP/JPY) caught a bid before the morning London session rolled around. There was no apparent catalyst for that, however.