Pound sterling is currently strengthening against all major currencies. The British pound is currently the strongest against the Canadian dollar and the Australian dollar. Last week, the currency sold off sharply after Q1 GDP growth fell below estimates. While much of the miss was related to the construction sector (particularly in light of severe winter weather and the Carillion saga), traders took few chances and sold the currency. Following recent weakness, we have downgraded our short-term outlook to bearish and our medium-term outlook to neutral.
While economic growth and associated monetary policy expectations have helped the pound in recent history, weak data means that the pound is running out of positive catalysts. Given the UK's significant trading relationship with the Eurozone, weakness in the euro is one more factor working against the currency. This is particularly the case following the recent ECB meeting which failed to meet expectations for guidance relating to ending the Bank's asset buying program.
In domestic news, Home Secretary Amber Rudd has resigned following the Windrush immigration scandal. Given Rudd's pro-European Union views, Theresa May cabinet's is becoming increasing pro-Brexit. Last week, Rudd refused to rule out a customs union with the EU. As Michael Gove (a leading pro-Brexit voice and the current environment secretary) is being touted to replace Rudd, there is a concern that pro-Brexit Conservatives will become more powerful following Rudd's departure. Our short-term outlook on the pound is bearish, while our medium-term outlook on the pound remains neutral.
GBP/USD is currently above 1.3780. EUR/GBP is down slightly, with the exchange rate above 0.8790. The pound is up against the Australian dollar and up against the Canadian dollar. GBP/AUD is currently above 1.8210, while GBP/CAD is above 1.770.
This is a relatively light week for the British pound economic calendar. Tomorrow, we’ll see Markit manufacturing PMIs for April and mortgage approvals for March. We’ll also see the BRC shop price index for April and consumer credit for March. On Wednesday, we’ll see construction PMIs for April. On Thursday, we’ll see Markit services PMIs for April. Last week, Q1 GDP growth figures missed expectations.