Today is a big day for the pound given the upcoming Bank of England interest rate decision and press conference. The BoE is widely expected to raise rates. Looking at bond markets, expectations for a BoE rate hike are currently above 85%. If the Bank fails to raise rates, this would be a very significant disappointment for the pound and the currency is likely to be materially weaker as a result. The British pound is up against the dollar this morning, while remaining flat against the euro. Yesterday, the pound was supported by strong manufacturing PMI figures, which suggests ongoing growth in the economy. The pound has been quite strong this week thanks to hopes of higher interest rates and a likely breakthrough in Brexit negotiations.
GBP/USD is currently just above 1.3270. EUR/GBP was flat yesterday and remains flat this morning. The pair is currently trading above 0.8780. The pound is flat against both the Australian dollar and the Canadian dollar today, after weakening yesterday. GBP/AUD is below 1.7190, while GBP/CAD is just above 1.7030.
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%). Markit manufacturing PMIs beat expectations (56.3 vs. 55.8 expected). Today is the key day, with the BoE interest rate decision, monetary policy summary, minutes and inflation report. We'll also see Markit Construction PMIs today. 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.