After selling off for three days in a row, the pound is taking a breather today. Yesterday, poor Markit/CIPS construction PMIs came in far below expectations, leading to concerns that economic growth in the UK remains shaky. Earlier in the week, there were growing concerns that the different factions within the Conservative party are not on the same page regarding Brexit given recent comments by Boris Johnson. Specifically, 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.
GBP/USD has now fallen below 1.33, with the current exchange rate trading just below 1.3270. Over at EUR/GBP, after strengthening for the past three days, today the exchange rate is trading sideways. The pair is currently trading just above 0.8860. Finally, the pound is mostly flat against both the Australian dollar and the Canadian dollar. GBP/AUD is currently below 1.6880, while GBP/CAD is just below 1.6550.
This week's economic releases includes a range of survey data. On Monday, Markit manufacturing PMIs were lower than expectations (55.9 vs. 56.4 expected). Yesterday's Markit/CIPS construction PMIs came in far below expectations (48.1 vs. 51 expected). Later today, 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.