The British pound is up today, after ending the day slightly higher yesterday. Following yesterday's Bank of England event, the pound strengthened as Governor Mark Carney stated that "it is likely to be necessary to raise interest rates" in order to bring inflation back to target. Following Carney's speech, the probability of a rate hike next May rose sharply. Similar to its peers in the US and Canada, the Bank of England is now committed to normalizing monetary policies. Thanks to the post-Brexit sell-off in the pound, inflation in the UK is currently above 3% per year. Looking at GBP/USD, the exchange rate strengthened above 1.40 following the BoE event. Unfortunately, the pound failed to hold onto gains after US stock markets resumed selling off. Unlike safe haven currencies such as the US dollar, the pound tends to weaken during times of peril. Looking at the latest Brexit headlines, the UK Treasury has published a dossier detailing the economic costs of Brexit. According to the Financial Times (paywall), the UK is expected to be worse-off under all scenarios. The Treasury's pre-Brexit economic forecasts, claiming that the UK would enter a recession following Brexit, failed to come true. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.3960. EUR/GBP is down, with the exchange rate above 0.8780. The pound is up against the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7920, while GBP/CAD is above 1.7580.
Looking at UK economic data this week, traders will be focused on upcoming PMIs and a Bank of England meeting. Markit/CIPS services PMIs were below expectations (53 vs. 54.1 expected). BRC retail sales were in line with previous figures (0.6%). Halifax house prices missed expectations (2.2% vs. 2.4% expected). Governor Mark Carney’s signaled an improving outlook, and the higher likelihood of more rate hikes. Later today, we’ll see industrial and manufacturing output. Last week, Nationwide housing prices were significantly ahead of expectations.