The British pound (sometimes known instead as pound sterling) is the United Kingdom's national currency. According to a recent survey by the Bank for International Settlements, the pound remains the fourth-most traded global currency. Specifically, 6% of all foreign exchange trading involves the pound.
Pound sterling is moving up today against all major currencies except the euro and the Australian dollar. Yesterday, the pound reversed course after the Bank of England's chief economist unexpectedly signaled his support for a rate hike. The British pound/US dollar pair found buyers just below the low end of yesterday's daily trading range (1.310). Today's GBP/USD trading range is 1.310 - 1.3470. After moving up for the last two trading sessions, the pound is no longer looking oversold.
Looking at the Bank of England's decision more closely, the BoE held rates at 0.50% yesterday and maintained its existing policies (including quantitative easing). The big change was that BoE Chief Economist Haldane is now supportive of another rate hike. Beyond Haldane's change of heart, the institution also stated that household spending and business sentiment have improved markedly. Members of the BoE are also more confident that the slowdown seen in the first quarter is temporary. All in all, Haldane's change of stance and the BoE's upbeat statement suggest a higher likelihood of a future rate hike. Unsurprisingly, the pound rallied from oversold conditions and continues to make gains today. Looking at trading patterns, yesterday's move up was accompanied by significant trading volumes, a bullish signal in the short-term.
While positive news is helping the pound recover, the longer-term outlook for the currency is not particularly benign. Thanks to an ongoing deceleration in European growth, expect the pound to remain in a bearish trend for the foreseeable future. Those looking to short the currency may consider entering the trade towards the top-end of our daily trading range. Our outlook on the pound remains bearish.
GBP/USD is currently above 1.330. EUR/GBP is up slightly, with the exchange rate above 0.8760. The pound is down slightly against the Australian dollar and up against the Canadian dollar. GBP/AUD is currently above 1.7910, while GBP/CAD is above 1.7670. GBP/JPY is up, and currently trading above 146.60.
|June 18||Rightmove House Price Index YoY JUN||1.6%||1.1%|
|June 21||Public Sector Net Borrowing MAY||-£3.36b||-£5.27b|
|June 21||BoE Interest Rate Decision||0.5%||0.5%|
|June 21||BoE Quantitative Easing||£435b||£435b|
|June 21||BoE MPC Vote Hike||3/9||2/9|
|June 21||BoE MPC Vote Cut||0/9||0/9|
|June 21||BoE MPC Vote Unchanged||6/9||7/9|
|June 21||BoE Gov Carney Speech|
|June 22||BoE Quarterly Bulletin|
Policy: Following the Brexit referendum, many expected the Bank of England to extend its zero interest rate policy for many years. Instead, the Bank hiked rates in 2017 following better-than-expected GDP growth and currency devaluation-fuelled inflation. In 2018, expectations for monetary tightening continue to rise thanks to strong regional growth. Looking at politics, Brexit trade negotiations dominate policy implications for the pound. While tangible progress relating to a trade deal with the EU remains limited, expectations are rising that the two sides will eventually close a deal. Pound traders remain hopeful that any future trade deal will give the UK preferential access in the area of financial and professional services exports.
Sentiment: Looking at the Commitments of Traders report, British pound speculators are now net long the currency. In 2017 and earlier, most speculators were net short the currency as markets feared for the worst following the Brexit referendum. In 2018, strong growth in the region is helping the pound recover its fortunes. When pound net positions hit bullish extremes from time to time, the currency is likely to pull back accordingly. Overall, the longer term bull market remains intact.
Economic data: Despite dire predictions, the economy has delivered healthy growth figures since Brexit and has avoided a recession. On the other hand, the weakening of the pound has led to import-fuelled inflation. The most recent figures show inflation surging above the BoE's 2% target. While higher rates of inflation would typically call for higher interest rates, so far the Bank has only delivered one rate hike. Inflation is expected to decrease in 2018 as the pound regains its strength.
In our previous analysis on the pound, we claimed that the number of catalysts driving the currency’s bullish trend were running out. At the time, we warned that the rally was running out of momentum, but did not see any evidence that would suggest adopting a bearish stance. Following recent weakness in the British pound, we downgraded our longer-term outlook on the currency to bearish on April 2…
The outlook for the pound, while still bullish, is looking less optimistic today. More specifically, factors including the ongoing slowdown in regional growth, lower expectations for a May rate hike, and significant speculator interest in the currency are hampering the rally. Following Brexit, the trade-weighted value of pound sterling (a measure of GBP relative to other currencies) hit an all-t…
Looking at the British pound today, concerns regarding Brexit and the stock market rout are outweighing the Bank of England’s positive economic outlook. As a currency that benefits from rising risk appetite, pound sterling has been selling off sharply in February thanks to fears regarding elevated asset prices. While Bank of England Governor Mark Carney helped the pound last Thursday after saying…