The pound was down sharply yesterday, as Mark Carney's speech did not meet the market's expectations of a rate hike in November. Instead, he said a rate hike was likely in the "coming months". As this may delay a rate hike to 2018, the pound sold off as a result. We have downgraded our short-term outlook on the pound to bearish accordingly. Consumer Price Index figures released yesterday matched expectations. Core CPI came in at 2.7% while CPI came in at 3%. Producer prices, on the other hand, beat expectations (8.4% vs. 8.2% expected).
GBP/USD is currently just below 1.3190. EUR/GBP is flat this morning (after being up yesterday) and is currently trading above 0.8910. The pound is down against both the Australian dollar and the Canadian dollar, with GBP/AUD around 1.6830 and GBP/CAD above 1.650.
This week is significant for the British pound – it includes a lot of economic data and the outcome of the European Council Meeting (which will include a report of the ongoing Brexit negotiations). On Tuesday, producer prices beat expectations (8.4% vs. 8.2%) while consumer price index figures met expectations (2.7% year-over-year core CPI and 3% year-over-year CPI). Given the BOE’s recent indication that a rate hike is likely, markets will be watching for high inflation rates to continue. Today, we’ll see jobless claims and the unemployment rate. 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.
After falling sharply on October 17, we are further downgrading the pound to bearish. The currency sold off after Carney failed to confirm a rate hike was coming next month (instead saying one was coming in the "coming months"). Earlier, we warned that the currency was overbought and was due for a rebound. Now, the currency has re-entered normal trading conditions.
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.