Yesterday started off well for the pound, as the currency initially traded sideways at the start of the day and ultimately rose on strong services PMI data. As the UK is a services-based economy, survey data covering professional services firms are watched closely by markets. However, later in the day, the pound fell (especially relative to the US dollar) as US economic data also came in above expectations. 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 is currently trading around 1.3230. Over at EUR/GBP, the exchange rate is taking a breather after strengthening for the past four days. The pair is currently trading just above 0.8880. Finally, the pound is up against the Australian dollar while trading sideways against the Canadian dollar. GBP/AUD is currently above 1.6910, while GBP/CAD is just below 1.6520.
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). Tuesday's Markit/CIPS construction PMIs came in far below expectations (48.1 vs. 51 expected). On Thursday, Markit/CIPS services PMI data beat expectations (53.6 vs 53.2 expected).
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.