Another net negative week for the British pound after early U.K. economic data disappoints and another round of unfavorable Brexit developments.
United Kingdom Headlines and Economic data
- Britain, Switzerland agree on post-Brexit trade
- UK GDP Growth Worst Since 2012
- Manufacturing slump puts UK economy into reverse as Brexit looms
- Barnier says Britain must give ground to break Brexit impasse
- Bank of England’s Carney sees ‘delicate equilibrium’ as world economy slows
- We must ‘hold our nerve’ on Brexit, May to tell MPs
- UK inflation falls to two-year low in January
- It’s May’s deal or long Brexit delay, UK’s chief negotiator overheard saying in bar
- Theresa May facing fresh move by cross-party group of MPs to block no-deal
- UK Residential Market Survey, January 2019: a slow start to the year
- BOE Vlieghe Says Loose BOE Policy More Apt in No Deal Brexit
- Theresa May suffers fresh Commons defeat
- UK retail sales bounce back in January
Major Market Drivers for the British Pound
As usual, global risk sentiment was big factor in the British pound’s relative performance to the other major currencies. For a broad rundown of what drove global risk sentiment, check out my review of this week’s risk sentiment drivers and broad market behavior in my Japanese yen weekly review here.
In short, we saw broad risk-on sentiment to start the week and dominated almost all the way through Friday as traders seemed to focus on the improving geopolitical risks related to the U.S.-China trade negotiations and the avoidance of another U.S. government shutdown with a new border security bill. Minus a broad turn towards risk-off after a very weak U.S. retail sales report during the Thursday U.S. trading session, traders were favoring the British pound all week over the safe havens, while it under performed (as expected in this risk environment) against the higher-yielding comdolls and the U.S. dollar.
Sterling pairs did see correlated movement through most of the week thanks to a busy economic calendar and the constant stream of Brexit headlines and events. It started on Monday with early pound weakness after the Office for National Statistics released a hefty batch of economic updates on the U.K., including GDP, manufacturing and industrial production, goods trade balance, etc. And let’s just say it was not good, highlighted by the GDP read that showed the weakest growth since 2012.
Tuesday’s price action was a bit mixed and choppy despite Bank of England Governor Mark Carney speaking on the global economy, but Wednesday saw uniform price action once again after weaker-than expected inflation reads bring in some sellers during the morning London session. But pound quickly found buyers a few hours later on with no seemingly direct catalyst, but possibilities for the bullish move could be after headlines of cross-party MPs trying to block a no deal Brexit. Unfortunately, for the bulls the move didn’t last long as Sterling pairs returned to selling within the next hour.
On Thursday, U.K. parliament rejected Theresa May’s negotiating strategy, an outcome that seems to have been expected by the market as Sterling pairs fell during the debate ahead of the vote. But on Friday, the bulls finally had a chance to shine after the ONS reported that U.K. retail sales bounced back in January and more than expected, showing that the consumer aren’t completely pessimistic despite the gloomy sentiment around politics and the Brexit situation. Sterling pairs went into rally mode after the news, managing to give the pound a couple of wins against the Swiss franc and Japanese yen in what was otherwise a rough week for Sterling bulls.