Despite kicking off the week with a public holiday, the pound was one of the better performing major currencies in the week's opening sessions, with the Cable recovering from May the 4th's break below the 200-day moving average for the first time since April 2017. The continued selling pressure largely caused by growing Brexit worries, political concerns, poor economic data and increasing expectations that the Bank of England would leave interest rates on hold at Thursday’s MPC meeting.
Fortunes turned mildly for the pound come the late afternoon of Wednesday session, as news broke that Japan’s Takeda Pharmaceutical had agreed to buy the UK-listed Irish drugmaker Shire for $46 billion. On the tail of this news, the Cable pushed back through the 1.35 figure and on to a high of 1.3560 but was short lived as Trump inevitably announced that the U.S. would pull out of the Iran nuclear deal, pushing the US dollar higher against the GBP, mostly on safe-haven demand. Closer to home, European leaders are pledging to uphold the pact, but whether that carries much sway we’ll have to see.
Moving onto the week's top-tier release, around three weeks ago it was all but guaranteed that we would be seeing a 25bp hike in Bank Rate however after a stream of soggy data and a dovish interview by BoE Governor, Mark Carney with the BBC where he highlighted (again) his concerns the impact Brexit could have on the UK economy, the Bank of England’s Monetary Policy Committee decided to keep rates on hold at 0.5% and the decision to stay put was no surprise. The accompanying Inflation Report, statement and press conference by Mark Carney highlighted how the economy had hit a soft patch of late adding drag to growth. A lot of this drag was put down to the bad weather seen in Q1 however recent poor data indicates this has rolled over to Q2 and can’t all be attributed to the Beast from the East. Markets still expect a 2018 rate rise however an August move now looks to be off the table leaving around an 80% chance of a hike in November.