Pound sterling is mostly flat today. The pound is slightly higher against the US dollar and the euro, while slightly lower against the Australian dollar and the Canadian dollar. Yesterday, GBP/USD fell to 1.3452, its lowest since December 29, 2017. The main culprit behind the move was broad strength in the US dollar. While British bond yields are rising alongside global yields, the weaker growth outlook means that rate hike expectations are limited.
Turning to the latest Brexit developments, Radio Television Ireland is reporting that the UK is considering remaining aligned with the EU's customs union for several years while it negotiates an exit. Unfortunately, remaining in the single market would require compliance with freedom of movement and oversight from the European Court of Justice. The current government has been unable to balance Parliament's desire for a closer relationship with the EU and demands from pro-Brexit Conservatives who are looking to independently negotiate trade deals. So far, the developments have had a limited impact on the currency.
Looking more deeply at the pound, GBP/USD continues to look oversold. Unlike other pairs such as EUR/USD or AUD/USD, the pound has not enjoyed a relief rally against the US dollar. While employment data yesterday was mostly in line with expectations, the pair was ultimately overshadowed by significant USD strength. Following GBP/USD's sharp sell-off starting in mid-April, we expect some relief for the pair in the short-term. Over the longer term, the combination of a weak growth outlook, limited rate hike expectations and ongoing political uncertainties means that the currency is likely to keep weakening. Our short-term and medium-term outlook on the pound is bearish.
GBP/USD is currently above 1.350. EUR/GBP is down slightly, with the exchange rate above 0.8760. The pound is down slightly against the Australian dollar and down slightly against the Canadian dollar. GBP/AUD is currently above 1.8060, while GBP/CAD is above 1.7370.
Following last week’s BoE interest rate decision, this is a light week for the British pound economic calendar. YoY wage growth excluding bonus (2.9%) and the unemployment rate (4.2%) met expectations. The claimant count (31.2k vs. 7.8k expected) was worse than expectations. On Thursday, we'll hear a speech by MPC member Haldane. Last week, the Bank of England surprised pound traders by outlining a weak forecast for growth and inflation this year.