The pound strengthened again yesterday after Michael Barnier (the EU's chief Brexit negotiator) suggested that he was ready to speed up negotiations. Earlier, news agencies had reported that Theresa May had called for the pace of Brexit talks to be accelerated. As talks are now likely to progress to trade discussions, the pound is stronger on the news. Prior to Barnier's announcement, the pound was rising on hopes that the Bank of England is set to raise interest rates this Thursday. Given high expectations for a 0.25% increase in interest rates, the pound is likely to remain supported until the event.
GBP/USD is currently just above 1.32700. EUR/GBP was down sharply yesterday and remains flat this morning. The pair is currently trading below 0.8770. The pound is mostly flat against both the Australian dollar and the Canadian dollar today, after strengthening yesterday. GBP/AUD is above 1.7340, while GBP/CAD is just above 1.7130.
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). Consumer confidence remains gloomy (-10 vs. -10 expected). Nationwide house prices show continued growth (2.5% vs. 2.2%). Later today, we’ll see Markit manufacturing PMIs. Thursday is the key day, with the BoE interest rate decision, monetary policy summary, minutes and inflation report. We'll also see Markit Construction PMIs on Thursday. Last week, GDP figures beat expectations.
After the pound strengthened following news of accelerated Brexit negotiations and hopes for an interest rate hike, we are upgrading the pound to bullish 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.