Last Friday was mostly disappointing for the pound, as the currency fell following poor economic data. Specifically, year-on-year GDP growth came in at 1.5% despite expectations of 1.7%. The current account also missed expectations, with the trade deficit now larger than expected. Both are pound-negative, and the currency sold off on the news.
GBP/USD has now fallen below 1.34, with the exchange rate currently trading below 1.3360. We lowered our short-term outlook on the pound to bearish this morning following a few days of decreasing exchange rates. Looking at EUR/GBP, the euro has strengthened against the pound this morning, despite the drama of the independence referendum in Catalonia over the weekend. EUR/GBP is currently trading above 0.88. After rising for more of last week, the pound is flat against the Australian dollar and the Canadian dollar this morning. GBP/AUD is currently just below 1.71 while GBP/CAD is just below 1.67.
This week's economic releases includes a range of survey data. Later today, we'll see Markit manufacturing PMIs. Tomorrow we'll get Markit/CIPS construction PMI data while on Wednesday we'll get Markit/CIPS services PMI data.
From its recent peak in the third week of September, the pound has fallen on most days. The currency has been falling due to a range of disappointments including weaker-than-expected economic data (GDP growth and current account deficits) and falling Bank of England interest rate hike odds. Having been in overbought conditions for some time, we now believe the pound has re-entered normal trading conditions. This is based on various technical indicators when looking at a daily chart.
After maintaining a bullish outlook on the pound since early September (following interest rate hike indications from the Bank of England), we are now downgrading the pound to neutral. The currency has sold off in the last two weeks of September, and as such, has run out of bullish momentum at this point. After looking overbought on a range of technical indicators, the pound is now back to trading within normal conditions.