The UK has had a series of positive news over the last few days, which has helped push the pound higher. The general weakness in the dollar naturally helped push cable higher. But there is some data that fits into a narrative that the UK could escape from the doldrums of Europe. That could mean there is more upside for pound pairs – unless the data doesn’t convince policymakers.

The main obstacle for the pound to gain momentum is the growing perception that the BOE will give up on keeping rates higher. The main reason is that the economy is in stagnation, and only a wrong set of data away from falling into recession. If the Euro Area is going into recession, and the UK is beset by similar problems, then it will be hard for Britain to escape a downturn. And that will more likely bring rates down, and the pound with it.

Finding Escape Velocity

But, if the UK manages to outperform its Continental peers, then the BOE might just go through with the hikes. After all, the commentary from officials at the monetary policy regulatory entity have been pretty hawkish after a 6-3 vote for a pause. And now we get a chance to see if that stance is durable. Two key MPC speakers are on the docket tomorrow, with keen interest in what they might say, for different reasons.

First up is Dave Ramsden, who voted in favor of holding rates steady. Investors will be keen to look at the majority of voters from the last meeting to see if there are any cracks in the “higher for longer” narrative that Ramsden was insisting on as late as last week. Any suggestion that rates could be revised from him could push the pound lower.

Keeping up the Pressure

Next is Jonathan Haskel, who voted to hike at the last meeting. He might be of even more interest, because so far he’s declined to comment on the policy outlook. If one of the voters for higher rates were to suggest that rates have hit their top, it could also weaken the case for the BOE standing tough against inflation. On the other hand, comments about further policy action being needed could prop up the pound, as the market has largely given up on a further rate hike.

The main concern is that the high rates could end up causing some kind of financial issue. Last year there was a scare of how high rates could have a negative impact on the financial markets, and since then investors have been casting around for where the next weakest link could be. A lot of them have their eyes on the housing industry, as high mortgage rates are causing the housing market to dry up and home prices to tank. If the situation gets worse, it could renew pressure on the BOE to cut.

The Data for the Rest of the Week

UK Mortgage approvals on Wednesday will be in focus, as the number is expected to keep falling to 42K, down from 43.3K prior, with the volume of lending dropping by another £500M. After that on Thursday is the release of Nationwide housing prices, which are also expected to show continued declines at -4.0% annual compared to -3.3% annual

Further declines in the housing sector are likely to put downward pressure on gilts and, by extension, the pound. But if there were a surprise uplift in the housing market, it could support the notion that the BOE might get away with not hiking in the medium term.

Trading the news requires access to extensive market research - and that's what we do best.

OPEN LIVE ACCOUNT