Pound sterling is currently mixed. The British pound is higher against the US dollar, while selling off against the euro and the Australian dollar. Yesterday, the pound weakened against most major currencies, despite better than expected construction sector sentiment data. Looking at GBP/USD, the pair was higher during European trading hours, but fell sharply during late US trading hours as the US dollar broadly strengthened.
In recent history, the pound has been affected by both falling rate hike expectations and renewed political concerns. After a series of defeats in the House of Lords, Theresa May's government looks destined to cave on demands to join a customs union with the European Union. As a result, pro-Brexit Conservative members such as Rees-Mogg are turning against May's government. According to Bloomberg, Rees-Mogg has threatened to withdraw support for May, effectively stopping the current government from progressing with Brexit. As the incumbent government has a very slim majority in Parliament, Theresa May cannot afford to lose support from pro-Brexit Conservatives. As we wrote in a commentary a few months ago, the UK is most likely to concede on most of the EU's demands given the dynamics of the negotiation. For May, this is particularly tricky as many members of her party would like her to adopt a tougher negotiating stance.
Later today, we'll see sentiment data from the UK's services sector. Unlike manufacturing or construction sentiment, services figures have the biggest impact on the pound. This is because the UK's exports are dominated by its significant professional services industry. Our short-term and medium-term outlook on the pound is bearish.
GBP/USD is currently above 1.360. EUR/GBP is up slightly, with the exchange rate above 0.8810. The pound is down against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.8080, while GBP/CAD is above 1.7470.
This is a relatively light week for the British pound economic calendar. Markit manufacturing PMIs for April (53.9 vs 54.8 expected) missed expectations by a wide margin. Mortgage approvals for March (62.9k vs. 63.0k) also missed expectations. The BRC shop price index for April (-1%) remained the same relative to previous figures. Construction PMIs for April (52.5 vs. 50.5 expected) were ahead of expectations. Later today, we’ll see Markit services PMIs for April. Last week, Q1 GDP growth figures missed expectations.