British pound - GBP

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. 

Outlook
Bearish

Daily update

Pound sterling is currently flat against all major currencies except the Japanese yen and the euro. Yesterday, the pound moved slightly higher against the US dollar after moving into oversold territory earlier this week. Thanks to a broad rebound across all 'risk on' currencies, the pound benefited accordingly. Today's GBP/USD trading range remains 1.2660 - 1.2940.

July year-over-year retail sales growth numbers both smashed expectations and accelerated relative to the previous monthly figures. Thanks to weakening base effects (at this point last year, retail sales growth was both low and decelerating), recent retail sales numbers have been fairly strong. Other economic indicators, such as industrial and manufacturing production growth, have also accelerated in recent history. Unfortunately, the data had a limited impact on the currency. 

Looking at the pound more broadly, yesterday's rebound was particularly weak. Other 'risk on' currencies such as the euro and the Australian dollar have fared far better against the US dollar in recent history. Our outlook on the British pound remains bearish. 

GBP/USD is currently above 1.2710. EUR/GBP is up slightly, with the pair trading above 0.8950. The pound is down slightly against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7490, while GBP/CAD is above 1.6710. 

Date Event Actual Previous
August 14 Claimant Count Change JUL 6.2K 9K
August 14 Employment Change MAY 42K 137K
August 14 Average Earnings excl. Bonus JUN 2.7% 2.8%
August 14 Average Earnings incl. Bonus JUN 2.4% 2.5%
August 15 Core Inflation Rate YoY JUL 1.9% 1.9%
August 15 Retail Price Index YoY JUL 3.2% 3.4%
August 15 Inflation Rate YoY JUL 2.5% 2.4%
August 15 PPI Input YoY JUL 10.9% 10.3%
August 15 PPI Output YoY JUL 3.1% 3.3%
August 16 Retail Sales ex Fuel YoY JUL 3.7% 2.9%
August 16 Retail Sales YoY JUL 3.5% 2.9%
Updated 

British pound Outlook

Outlook
Bearish

Updated 

Background

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. 

Analysis

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…

Published 

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…

Published 

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…

Published 

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