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British pound slightly following after significant sell-off

British pound daily update


British pound daily update

Pound sterling is slightly higher today. The British pound is currently strengthening against all currencies except the Canadian dollar and the euro. Yesterday, the pound sold off sharply against the US dollar thanks to rising interest rates. As US government bonds offer higher yields relative to comparable UK government bonds, the US dollar is a relatively more attractive investment. 

Turning to recent news, Prime Minister Theresa May suffered her third defeat in the House of Lords relating to Brexit. The upper house voted to amend the Brexit Bill such that a majority of EU rights are written into UK law following Brexit. Last week, the House of Lords voted in favor of a plan requiring ministers to report on progress relating to a UK-EU customs union. May's government has argued that the best outcome is to avoid a customs union (as this prevents the UK from independently negotiating international trade agreements). So far, May has failed to convince many in the Conservative Party that staying out of a customs union is in the UK's best interest. Later this year, the House of Commons will vote on a customs bill. The issue today is that the government is most likely to concede on the issue given broad support for a customs union with the EU. 

In recent history, the pound has showed limited reactions to political developments relating to Brexit. As we wrote in a recent  commentary, the ongoing pound rally is running out of catalysts. While the currency remains significantly undervalued, the case for buying pounds is becoming weaker. Our short-term outlook on the pound is now neutral, while our medium-term outlook on the pound remains bullish

GBP/USD is currently above 1.3940. EUR/GBP is up slightly, with the exchange rate above 0.8760. The pound is flat against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.8320, while GBP/CAD is above 1.7890.

Looking at this week’s economic data from the United Kingdom, traders will be watching upcoming Q1 GDP growth figures. Later today, we’ll see public sector borrowing figures for March. On Thursday, we’ll see Nationwide housing price growth for April. On Friday, the most important day, we’ll get Q1 GDP growth. We’ll also see GfK consumer confidence for April. Last week, March inflation figures were below estimates while Governor Mark Carney downplayed the possibility of a rate hike in May.


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