The British pound was the outlier among FX majors this week as price action was influence more by U.K. drivers than global risk sentiment…unfortunately, not in a good way for Sterling bulls!
Major Market Drivers for the British Pound
Global risk sentiment was an influence on Sterling pairs this week, and for a broader rundown of what drove global risk sentiment, check out my review of this week’s risk sentiment drivers and its effects on market behavior in my Japanese yen weekly review here.
In short, global risk-off sentiment early in the week is likely the reason why we saw Sterling’s performance against the safe haven lag versus the high-yielders/comdolls. And vice versa at the end of the week when traders were generally positive on risk, Sterling was really, really bad against the high-yielders relative to just bad against the safe havens.
Beyond risk sentiment, it looks like this week’s main Brexit event had forex traders sour on Sterling was the vote on the Brexit deal amendments presented by U.K. parliamentary members.
ICYMI on Tuesday, the U.K. House of Commons voted on a series of Brexit amendments, some of which were created to either force Theresa May to re-write her Brexit deal, rule out a no-deal, delay Brexit, or even for the MPs to take control of the Brexit process from the government.
The outcome was obviously not what Sterling bulls wanted to hear as the vote resulted in no path to prevent the likely disastrous “no-deal” scenario, instead forcing Theresa May to go back to Brussels to renegotiate the Irish backstop with the EU (a scenario the EU quickly rejected several times).
With the possibility of no-deal Brexit still alive, and arguably rising given the EU’s reluctance to renegotiate the deal, it’s not wonder why Sterling traders were in bear mode ahead, during and after the event.
Beyond the amendments vote, British pound pairs did see other brief moments of notable uniform movement against a U.K. related catalyst.
First, we saw a broad Sterling rally on Thursday possibly on comments from British Foreign Secretary Jeremy Hunt hinting on a Brexit delay, then a sell-off on Friday after the weaker-than-expected U.K. manufacturing PMI data (52.8 actual vs. 53.5 forecast / 54.2 previous). Finally, a broad Sterling bump higher a few hours later, possibly on news of the British officials beginning work on staying in a permanent EU customs union.
Overall, it was a bad week for Sterling, which broke its streak of gains for five weeks, and also coveted the award for worst major currency of the week!
United Kingdom Headlines and Economic data
- Brexit: Theresa May will ask the EU to reopen Brexit deal
- British lawmakers instruct May to demand EU reopen Brexit deal; EU says ‘No’
- Theresa May: MPs’ vote not enough to kill threat of no-deal Brexit
- UK Consumer Confidence stable, but still five points lower than this time last year
- UK house prices stagnate ahead of Brexit – Nationwide
- Jeremy Hunt admits Brexit may be delayed to avoid no deal
- Theresa May considering bid to woo Labour MPs with cash injection for Leave areas
- UK Manufacturing PMI Hits Three-Month Low In January
- Brexit: EU agrees visa-free travel for UK citizens even after no-deal exit
- M4 money supply increases by 0.4% in December versus 0.1% in November