A relatively quiet week for U.K. and Brexit headlines didn’t stop Sterling bulls from putting the pound on top of the major currencies.
United Kingdom Headlines and Economic data
- Seven MPs leave Labour Party in protest at Jeremy Corbyn’s leadership
- UK employment hits another record high
- U.K. manufacturing output growth slowed in the quarter to February, while order books improved slightly – CBI Industrial Trends Survey
- Three Conservative MPs have quit Theresa May’s party over Brexit
- Fitch puts UK credit rating on negative watch
- European Union, Britain moving toward agreement on Irish backstop for Brexit
- EU president Juncker says he is ‘not optimistic’ that no-deal can be avoided after meeting with Theresa May
- Public sector net borrowing (excluding public sector banks) in January 2019 was in surplus by £14.9 billion
- Theresa May delays meaningful vote on final Brexit deal
Major Market Drivers for the British Pound
As usual, global risk sentiment was a factor in the British pound’s relative performance to the other major currencies. And 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 dominate most of the week on, as usual, growing optimism on the U.S.-China trade negotiation story (Trump signals possible deadline extension and outlines for deal starting to be sketched out) , and possibly support from the continued narrative of central banks ceasing their tightening ways after this week’s FOMC meeting minutes showed a likely end to their balance sheet reduction this year.
Global risk sentiment factors are odds-on the reason why we saw the British pound’s out-performance against the yen and Greenback was great than against the euro, franc, and Canadian dollar. Its big out-performance against the Aussie and Kiwi were due to their own relatively negative headlines and Asia region trade updates.
Focusing on the U.K., this week’s headlines didn’t seem too conducive of bullish Sterling behavior, most notably the exodus of members of parliament from the Labour Party in protest of Corybn’s leadership and the Conservative Party on May’s handling of Brexit causing havoc on the U.K.’s political scene. Of course, the stream of commentary from U.K. and EU officials reiterating that a no-deal Brexit is still a possibility continues, likely also not helping the bull case for the British pound.
In terms of economic data, the calendar was light from the U.K. but it did include one top tier report, the U.K.’s monthly read on employment data. Unfortunately for Sterling traders looking for big volatility, the jobs data was mixed as it showed wages to be at its highest level since March 2011 when adjusting for inflation, but no improvements to the jobless rate, which as observed in the one our chart overlay above did not result in a significant reaction right away.
CBI Industrial orders expectations and public sector borrowing data also did not yield a significant reaction from Sterling traders, especially since the behavior following the data releases were bearish, counter to the positive reads from both data points.
With Brexit headlines and U.K. data leaning more negative than positive, the bullish stance of traders this week on the British pound was a bit odd, especially that strong uniform move during the Tuesday U.S. trading session. That broad move higher could not be attributed to a direct catalyst (except arguably a delayed reaction to the U.K. jobs data), so it’s possible it was a short squeeze since the pound has been falling steadily this month after hitting its 2019 peaks at the end of January.