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Bad economic data was no problem for the British pound as risk sentiment and counter currency weakness were likely the reason for Sterling’s out performance against the majors this week.
United Kingdom Headlines and Economic data
Monday:
- Sterling started off mixed on Monday and ultimately closed the session lower. There were no apparent direct catalysts from the U.K., so it’s likely due to the continued negative risk sentiment fueled by the ongoing coronavirus pandemic and likely economic damage to the global economy. Sentiment actually shifted during the U.S. session towards positive (likely sparked by a pledge from the Federal Reserve to support the markets with no limits), which is likely why we saw Sterling even under perform against the Kiwi and Aussie by the end of the session.
Tuesday:
- U.K. locked down after Johnson acts over ‘national emergency’
- Flash PMI signals record slump in business activity amid emergency public health measures to halt spread of coronavirus
- Bank of England says coronavirus tougher than banks’ stress test
- By the end of the Tuesday session, we began to see the typical behavior for Sterling in risk-on environments, which was now being sparked by the steady flow of stimulative measures from global central banks/governments (ECB Intends to Be Major Buyer in Commercial Player Market, Canada doubles value of coronavirus stimulus package, etc.). The British pound began to outperform the “safe haven” majors while underperforming against the Aussie and Kiwi.
Wednesday:
- UK inflation falls off six-month high as fuel prices drop
- UK parliament set to close for at least four weeks on Wednesday
- UK house price growth slowed in January: ONS
- Stockpiling props up retail sales in March, but volumes expected to slide
Thursday:
- Bank of England promises more bond-buying if needed to fight coronavirus crisis
- Bank of England Monetary Policy Summary
- UK Retail Sales Stagnate in February, Before Virus Hit
- More news of stimulus measures to support the global economy (e.g., ECB shakes off limits on new €750bn bond buying plan, U.S. Senate passes $2T disaster aid bill, South Korea to relax FX liquidity rules for banks, India cuts rates & unleashes $50B in stimulus, etc.) kept the risk-on train going on the session, and this is where we began to see Sterling out perform against all of the majors. There doesn’t seem to be an obvious catalysts for this behavior, so we’ll just chalk it up to counter currency weakness: a a very weak U.S. dollar thanks to the US’s stimulus measures, less demand for “safe havens” as extreme fear subsides, and news of lockdown in New Zealand & Australia hold down the Kiwi and Aussie.
Friday:
- Boris Johnson, U.K. Prime Minister, Has the Coronavirus
- With no major negative catalysts from the U.K. on Friday, it’s likely the themes from Thursday were the drivers for Sterling’s push higher against the major currencies on Friday.