The pound is up again this morning, after rebounding sharply yesterday. Conservative Party leaders have publicly supported Theresa May - dampening fears that a power struggle may derail the current Brexit negotiations. Earlier, we warned that the pound was looking oversold. The currency remains oversold, particularly against the dollar, and may continue strengthening from here. While the medium-term picture for the pound remains weak, there are many catalysts that can help the currency strengthen in the short term. We covered our recent views on the pound in a thought piece yesterday.
GBP/USD is currently trading above 1.3170, having made its most recent bottom above 1.30. EUR/GBP is up slightly today, after falling sharply yesterday. EUR/GBP is currently trading above 0.8940. The pound is down slightly against the Australian dollar and the Canadian dollar this morning, with GBP/AUD around 1.690 and GBP/CAD around 1.6480.
After various survey data points last week, this week will include a fair amount of macroeconomic data for the UK. Today, retail sales came in quite strong (1.9%) vs. previous figures (1.3%). Later today, we'll get lots of data including manufacturing and industrial production figures, trade balance data and an estimate for GDP growth in the trailing three months. Finally on Wednesday, we’ll get house price data. Last week's survey data suggested good services growth, while construction and manufacturing PMIs came in below expectations.
After rebounding with strength on October 9, we are upgrading the pound to neutral. Earlier, we warned that the currency was overbought - and this remains the case for now. Earlier, pound sterling was weakening 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.
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.