The British pound strengthened yesterday and continues to strengthen this morning. Donald Tusk, the current European Central Bank president, will ask British Prime Minister Theresa May when they meet on Friday how she will meet EU conditions before the next mid-December summit. Pound sterling strengthened on the news as a sign of Brexit progress. The pound was also supported by stronger-than-expected retail sales growth. While retail sales growth remains negative, the figures were better than analyst estimates. Our outlook on the pound is now bullish in the short-term.
GBP/USD is currently just above 1.3250. EUR/GBP is flat and the pair is currently trading above 0.890. The pound is up against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7510, while GBP/CAD is just above 1.6890.
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. The unemployment rate met expectations (4.3%) while the number of new claims was lower than expected (1.1k vs. 2.3k expected). Retail sales were better than expected (-0.3% vs. -0.6% expected). 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.