The pound was broadly weaker yesterday following another personnel issue in Theresa May's government. Priti Patel, the UK's former foreign aid minister, resigned yesterday after holding a series of unofficial meetings with Israeli politicians without the consent of Downing Street. While she initially avoided being sacked, her fate was sealed once it emerged that she had withheld some key details regarding her meetings. A few days ago, Michael Fallon (the former Defence Secretary) was forced out following allegations that he sexually assaulted a journalist. According to a recent news report from The Independent, senior Conservatives have given May "until Christmas to turn it around.” Given the heavy influence of politics on the pound, now that monetary policy is no longer in the driver's seat, any instability in May's government is negative for the currency.
GBP/USD is currently just above 1.3150. EUR/GBP is stronger and the pair is currently trading above 0.8830. The pound is down against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7090, while GBP/CAD is just below 1.6720.
Looking at the economic calendar for the pound this week, it includes retail sales, GDP estimates and industrial production figures. On Tuesday, BRC retail sales were weak (-1% vs. 1.9% prior) while Halifax House prices met expectations (4.5% vs. 4.5% expected). RICS Housing Price Balance survey numbers were significantly below expectations (1 vs. 4 expected), while NIESR GDP growth estimates for October have yet to be released. Finally, on Friday we’ll see industrial production, manufacturing production and trade balances. Last week, the Bank of England hiked rates while dampening expectations of more rate cuts in the future.
As the pound weakens on uncertainty regarding Theresa May's government, we are downgrading the pound to bearish in the short-term. The pound is trading within normal conditions. This is based on various technical indicators on a daily chart.
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.