The British pound remains weak against major currencies. As we reported yesterday, the currency sold off after The Sunday Times reported that 40 Conservative MPs have agreed to sign a letter of no confidence in Theresa May. As the pound remains highly sensitive to Brexit-related developments, the possibility of a power struggle in the Conservative Party is bad news for the currency. In general, the pound has been under pressure as there have been limited tangible progress relating to a Brexit deal. As the possibility of 'hard Brexit' becomes more and more likely with the passage of time, the pound is likely to remain weak.
GBP/USD is currently just below 1.310. EUR/GBP is up sharply and the pair is currently trading above 0.8920. The pound is down against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7160, while GBP/CAD is just below 1.6680.
This is a big week for economic data releases relating to the pound. On Tuesday, we’ll see producer price index numbers and the consumer price index. Given the Bank of England’s latest rate hike, markets will be closely watching if inflation remains elevated. On Wednesday, we’ll get the claimant count change and the ILO unemployment rate. Finally on Thursday, we’ll see year-on-year retail sales. Last week, BRC retail sales missed estimates while both industrial and manufacturing production were stronger than expected.
Following reports of another potential Conservative power struggle, 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.