After rising sharply on hopes of a breakthrough, the pound reversed course yesterday after Theresa May and Jean-Claude Juncker failed to come to a deal. This morning, the pound continues to sell off. We published our thoughts on the difficulty of coming to a 'comprehensive' Brexit deal in a recent commentary. In short, access to the EU's single market is unlikely given the EU's demands. Alternatives to the single market (such as the recently signed free trade agreement with Canada) are a poor substitute. While the pound is weaker, the currency has been more reactive to good news as opposed to bad news in recent history. As such, our short-term and medium-term outlook remain bullish.
GBP/USD is currently just above 1.3420. EUR/GBP is up today and the pair is currently trading above 0.8830. The pound is down against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7560, while GBP/CAD is just above 1.6990.
This week’s economic data includes PMIs, retail sales and industrial/manufacturing production. PMI construction beat expectations (53.1 vs. 51 expected). Earlier today, BRC Retail Sales were higher than the previous print (0.6% vs. -1% prior). Finally on Friday we’ll get industrial and manufacturing production. Last week, data relating to housing and home price growth suggested a sluggish outlook for real estate.
As the pound rises following Theresa May's calls for an election, we are now bullish on the currency in the medium-term. The pound is now trading within normal conditions. This is based on a range of technical indicators looking at a weekly chart.