Unusual sterling moves often precede UK data releases - analysis

LONDON (Reuters) - Movements in the value of British sterling against the U.S. dollar have shown an unusual pattern shortly before monthly releases of the country’s official retail sales data, according to an analysis by Reuters.

A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand October 12, 2010. REUTERS/Sukree Sukplang/File Photo

On eight occasions over the past 12 months, the pound has moved against the dollar in the minutes before the release of the retail sales numbers, correctly anticipating the direction the currency took once the figures were published.

This has been true even when the retail sales data have gone against the Reuters poll market consensus, leading to speculation among traders about the possibility of leaks of the information before its official publication.

The Office for National Statistics, which publishes the retail sales data, declined to comment on the specifics of the Reuters analysis but a spokesman said it takes protection of unreleased economic data “extremely seriously”.

The Financial Conduct Authority, which is responsible for investigating misconduct in financial markets, declined to comment when asked about possible leaks.

In 2011, the ONS investigated rumours that data showing an unexpected drop in inflation had been circulating in the markets before the official release time. The ONS declined to comment on the outcome of that investigation.

On Feb. 17, the date of the most recent retail sales figures, sterling fell by around 20 ticks to $1.2440 in the space of around 15 seconds, around three minutes before the release of the numbers for January.

When the figures were published by the ONS, they showed sales had been much weaker than economists had expected, sending sterling down further.

Foreign exchange traders posted messages on Twitter saying they believed that the data had been leaked ahead of time, a regular refrain after the monthly retail sales figures.

In a market where all investors have equal access to data, it would be unlikely for sterling to move consistently ahead of ONS releases in what later proves to be the right direction.

A similar pattern to February’s movements was found to have occurred in seven of the other 12 months for which Reuters analysed trading data. The moves in sterling were most notable in January, November, October, July and April as well as in February. In five of those months, the official figures were significantly weaker or stronger than forecasts by economists.

In the other three months - such as December last year - there was little move in sterling. On two of those occasions, the numbers were in line with the forecasts of economists.

To conduct its analysis, Reuters looked at tick-by-tick movements in quoted sterling-dollar prices GBP=, supplemented by price data from Reuters Matching - the benchmark system for pricing trades in the pound between banks - in the minutes before and after the retail sales data releases in the 12 months to February this year.

Financial markets are driven by many factors and the pattern detected in the Reuters analysis might not be judged to be statistically significant.

David Woolcock, chair of the committee of professionalism at the Association Cambiste Internationale Financial Markets Association, a body representing foreign exchange dealers, said his review of the analysis suggested either that some investors were very good at predicting what the data would show, or that it was being leaked.

“Looking at the charts shown to me by Thomson Reuters it seems evident that either a very close correlation in private/public data has been discovered that is allowing traders to pre-position ahead of publication or a leak of the numbers is occurring,” he said.

On Monday, the Wall Street Journal published an analysis of 207 releases of British inflation, industrial production and labour market data, which showed that on 59.5 percent of occasions British government bond futures moved ahead of the data in what proved to be the right direction.

Alexander Kurov, an associate professor of finance at West Virginia University who conducted the analysis for the Wall Street Journal, told the newspaper it was “very unlikely that we are looking at a random pattern.”

The ONS provides a preview of the retail sales figures before their publication to 41 people at the Bank of England, the business ministry, Cabinet Office, Downing Street and the Treasury. Those people had access to the data 24 hours ahead of publication.

Around a dozen journalists from news agencies including Reuters have access to the data around 40 minutes ahead of publication. However, they are only given the information in a locked room without Internet or phone access and under the supervision of ONS staff.

An annual survey published last month by the UK Statistics Authority (UKSA), which oversees the ONS, showed two-thirds of Britons think official statistics should be released to everybody, including the public, at the same time.

“The UKSA takes data security very seriously, and doesn’t comment on speculation like this,” a spokeswoman for the watchdog said when asked about the Reuters analysis.

Writing by William Schomberg and Andy Bruce, graphic by Michael Ovaska; editing by Mark John, editing by Pritha Sarkar