The British pound enjoyed a small bounce yesterday against most major currencies except the euro. The euro has been quite strong thanks to good GDP growth in the Eurozone. Earlier, the pound was selling off on renewed concerns of a power struggle within the Conservative Party. Looking at recent British economic data, both headline inflation figures (3% vs. 3.1% expected) and producer prices (4.6% vs. 4.8% expected) came in below estimates yesterday. As inflation in the UK falls below expectations, hopes for future rate hikes are falling commensurately. Later today, we'll see jobless numbers from the UK. We upgraded our short-term outlook on the pound to neutral this morning.
GBP/USD is currently just above 1.3170. EUR/GBP is up sharply and the pair is currently trading above 0.8960. The pound is up against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7340, while GBP/CAD is just above 1.6750.
This is a big week for economic data releases relating to the pound. Producer price index numbers (3% vs. 3.1% expected) and consumer price index figures (3% vs. 3.1% expected) were both below expectations. Later today, 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.
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.