The pound has started off the week on a strong note, and continues to strengthen this morning. As UK bond yields weaken at a slower pace relative to its peers, the pound is strengthening as a result. As there is a Bank of England interest rate decision and meeting later this week (Thursday), there are rising expectations of another rate hike. Thus the currency is more likely to trade sideways or strengthen going into the event. Our short-term and medium-term outlook on the currency remains neutral.
GBP/USD is currently just above 1.320. EUR/GBP is down this morning, and is currently trading above 0.880. The pound is up slightly against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.720, while GBP/CAD is just below 1.6950.
This is a big week for the pound, as the much-anticipated Bank of England rate hike may be announced on Thursday. Consumer credit was higher than expectations (1.6b vs. 1.5b expected), while mortgage approvals were lower than the previous figures (3.8b vs. 3.9b). Later today, we’ll get consumer confidence. On Wednesday we’ll see Markit manufacturing PMIs. Thursday is the key day, with the BoE interest rate decision, monetary policy summary, minutes and inflation report. Last week, GDP figures beat expectations.
After running out of steam following weak retail sales survey figures, we are downgrading the pound to neutral in the short-term. While we had warned that the currency was oversold in early October and was looking due for a rebound, the pound has since 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.