Yesterday was another bad day for the pound, as markets digested the previous week's poor economic data and news from the Conservative party conference over the weekend. Specifically, Boris Johnson's interview in The Sun, in which he revealed four 'red lines' regarding Brexit, suggests that a transition deal may be more distant than expected. The pound sold off sharply after the start of the day yesterday, and has continued to sell off today.
GBP/USD has now fallen below 1.33, with the current exchange rate trading just below 1.3270. This morning, we lowered our medium-term outlook on the pound to neutral after the exchange rate weakened since its peak earlier in September. Over at EUR/GBP, after strengthening for the past two days, today the exchange rate is trading sideways. The pair is currently trading just above 0.8830. Finally, the pound has made some progress against both the Australian dollar and the Canadian dollar. GBP/AUD is currently below 1.6990, while GBP/CAD is just above 1.66.
This week's economic releases includes a range of survey data. Yesterday, Markit manufacturing PMIs were lower than expectations (55.9 vs. 56.4 expected). Today 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 bearish. The currency has sold off in the last two weeks of September, and the first week of October, thanks to poor economic data, perceived political infighting within the Conservative party and falling rate hike odds. After looking overbought on a range of technical indicators, the pound is now back to trading within normal conditions.