The pound is up this morning, and has been strengthening now for six days in a row. Given the Bank of England's earlier indication that interest rates are likely to rise, short-term UK bond yields are rising, helping the pound. Last week, the pound survived news reports that progress from recent Brexit talks has been limited. While the currency initially weakened sharply, the pound managed to bounce back on reports that the EU is considering giving the UK a 2-year extension of its EU membership. All in all, the pound has been performing well in recent times.
GBP/USD is currently just above 1.33, having strengthened for the last six consecutive days. EUR/GBP is down this morning (after falling last Friday) and is currently trading below 0.88650. The pound is up slightly against both the Australian dollar and the Canadian dollar, with GBP/AUD around 1.6870 and GBP/CAD above 1.660.
This week is significant for the British pound – there is a lot of economic data on the schedule and the outcome of the European Council Meeting (which will include a report of the ongoing Brexit negotiations). On Tuesday, we’ll get producer prices and consumer price index figures. Given the BOE’s recent indication that a rate hike is likely, markets will be watching for high inflation rates to continue. On Wednesday, we’ll see jobless claims, the unemployment rate and hearings from the inflation report hearings. On Thursday, we’ll get retail sales figures. The European Council Meeting, which is scheduled for October 19 and 20 (Thursday and Friday), will contain a review of the ongoing Brexit negotiations. Given the sensitivity of the pound to Brexit progress, any update from the meeting will be watched closely.
The pound has strengthened every day in the second week of October, and as such we are upgrading the currency to bullish in the short-term. Earlier, we warned that the currency was overbought and was due for a rebound. Now, the currency has re-entered normal trading conditions. 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 strengthening in the second week of October, we are now neutral on the British pound. The pound rebounded after senior Conservative Party leaders publicly backed Theresa May, suggesting that rumors of May's resignation were unfounded. The pound has been particularly strong against the US dollar and the euro in recent times. After looking overbought on a range of technical indicators, the pound is now back to trading within normal conditions.