Pound sterling is currently slightly higher against all major currencies except the Japanese yen. The pound is currently the strongest against the Canadian dollar and the Australian dollar. Yesterday, the pound made significant gains versus the euro, following disappointing economic data from the Eurozone. While we maintain a bullish short-term outlook on the EUR/GBP pair, the last two trading sessions have seen the euro give up recent gains against the pound. The pound continues to look oversold in the short-term, particularly against the US dollar.
Turning to news, Conservative Party infighting regarding the pursuit of a customs deal with the European Union continues to dominate news headlines. In a longer commentary on the pound published yesterday, we contended that political uncertainty is set to weigh on the currency going forward. As optimism for future growth and rate hikes is on the wane, speculators are more likely to focus on the negatives. As such, issues relating to Brexit (such as the customs union debate) are likely to resurface. According to a Daily Mail interview, Boris Johnson has called May's proposal for a post-Brexit customs partnership "crazy". Johnson has argued that it would undermine the UK's ability to negotiate its own free trade deals and take back control. As the current government does not have enough votes to pursue either "hard Brexit" or a customs union in Parliament, Theresa May is looking trapped. Our short-term and medium-term outlook on the pound is bearish.
GBP/USD is currently above 1.3580. EUR/GBP is down, with the exchange rate above 0.8780. The pound is up against the Australian dollar and up against the Canadian dollar. GBP/AUD is currently above 1.8080, while GBP/CAD is above 1.7510.
This is an important week for the British pound economic calendar thanks to an upcoming Bank of England meeting. Later today, 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.