Pound sterling is currently strengthening against all major currencies. The British pound is currently the strongest versus the Australian dollar, the Canadian dollar and the euro. Last week, the pound continued to sell off sharply, particularly against the US dollar. Recent forward-looking economic data from the UK (such as services PMIs) were also disappointing. As the pound continues to look oversold, we expect the currency to enjoy a short-term relief rally.
Turning to recent news, the pursuit of a customs union with the European Union remains a significant issue for Theresa May's government. Following the Conservative Party's recent success in local elections, pro-Brexit Conservatives are increasingly adamant to avoid a customs union. Last week, Theresa May's idea of a "customs partnership" (a compromise between a full customs union and reinstating a "hard border" in Ireland) was rejected during a "war cabinet" meeting. Today, the BBC is reporting that the customs partnership proposal is back on the table. As tough Brexit-related issues resurface, domestic politics is once again becoming a concern for pound traders. Our short-term and medium-term outlook on the pound is bearish.
GBP/USD is currently above 1.3540. EUR/GBP is down, with the exchange rate above 0.8820. The pound is up against the Australian dollar and up against the Canadian dollar. GBP/AUD is currently above 1.8010, while GBP/CAD is above 1.7410.
This is an important week for the British pound economic calendar thanks to an upcoming Bank of England meeting. On Tuesday, we’ll see Halifax house prices for April. On Wednesday, we’ll see BRC retail sales for April. On Thursday, we’ll see industrial and manufacturing production for March, as well as the total trade balance for March. More importantly, we’ll see the Bank of England’s interest rate decision, its minutes and hear a speech by Governor Carney. While expectations for a rate hike this week were above 80% a few weeks ago, market-implied odds have fallen to below 15% following Carney’s latest comments and weak GDP data. As a result, the consensus expects the BoE to keep rates on hold. Last week, services PMIs were below expectations.