The British pound experienced somewhat of a wild ride yesterday. The pound fell after headlines of EU officials suggested that there had been "no breakthrough" on Brexit bill talks. Shortly thereafter, the currency strengthened after the Financial Times reported that Theresa May was prepared to pay a significantly higher Brexit bill. At an earlier speech in Florence, May said that she was prepared to pay €20b to the EU until 2020. In a recent commentary, we have argued that the pound is likely to become volatile as markets focus their attention on Brexit-related progress. Later today, there is a large amount of economic data set to be released.
GBP/USD is currently just above 1.3130. EUR/GBP is flat and the pair is currently trading above 0.8850. The pound is flat against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7110, while GBP/CAD is just below 1.6660.
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. Later today, 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.
After Theresa May considered increasing the size of the UK's Brexit bill, we are upgrading the pound to neutral 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.