The pound is slightly weaker this morning as markets refocus on Brexit. As we wrote last Friday, speculation of a 'Canada-style' free trade deal is hurting the pound as British services companies are likely to lose access to their largest market. While Theresa May and the ruling Conservative government have agreed to a higher 'Brexit bill', the British government expects to receive access to EU markets in return. Without access to key EU markets, the risk of 'hard Brexit' is becoming more and more likely.
GBP/USD is currently just above 1.3320. EUR/GBP is flat today and the pair is currently trading above 0.8940. The pound is flat against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.750, while GBP/CAD is just above 1.6930.
This is a fairly light week for economic data relating to the pound. On Tuesday we'll see Bank Stress Test Sesults and the Financial Stability Report. On Wednesday, we'll see consumer credit and mortgage approvals. On Thursday, we'll get consumer confidence. Finally, on Friday we'll see Markit manufacturing PMI. Last week, the Autumn Forecast Statement suggested a weak outlook for future economic growth.
As the pound enjoys a rebound, we are upgrading the currency to bullish in the short-term. The pound is looking overbought on a daily chart. 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.