The pound ended the day broadly lower yesterday after the Bank of England signaled a continuation of the status quo. The pound is mostly flat this morning. The BoE's statement suggested that future interest rates were likely to rise gradually. Following recent inflation figures which showed CPI rising at a rate above 3%, some traders were betting on a more hawkish outlook from the BoE. The recent breakthrough in Brexit negotiations also raised expectations. Looking at the Bank's future outlook, the BoE forecasts growth of 1.6% next year and expects inflation to fall in 2018. High inflation this year is mostly the result of a weaker pound following Brexit. As the pound has been fairly stable over the past 12 months, inflation expectations for 2018 are more limited. Our short-term and medium-term outlook remain bullish.
GBP/USD is currently just above 1.3440. EUR/GBP is flat today and the pair is currently trading above 0.8760. The pound is down against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7480, while GBP/CAD is just above 1.7130.
This is an important week for economic data and events from the UK. Producer prices met expectations (3%) while the consumer price index (3.1% vs. 3% expected) was higher than estimates. ILO unemployment (4.3% vs. 4.2% expected) and claimant count changes (5.9k vs. 3.2k expected) were worse than expected. The Bank of England's outlook suggested only gradual increases in future interest rates. Last week, the pound rallied and then sold off following an agreement with the EU on the Irish border, the Brexit bill and the rights of EU citizens following Brexit.
As the pound strengthens on Brexit-related hopes, we are upgrading the currency to bullish in the short-term. The pound is now trading within normal conditions. This is based on various technical indicators on a daily chart.
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.