After strengthening over the holidays, the British pound continues to climb higher. The pound has been especially strong against the US dollar and the yen, while selling off against commodity currencies such as the Australian dollar. Upcoming economic data this week, especially Markit services PMIs and Nationwide housing prices should provide some clarity regarding GDP growth in the UK. In 2017, relatively strong GDP growth coupled with rate hike expectations and optimism for Brexit trade negotiations helped strengthen the pound. In recent Brexit news, David Davis has warned EU negotiators that it cannot "cherry pick" the terms of a free trade deal with the UK. Mr. Davis has emphasized that financial services must be part of any future agreement according to a report by Sky News. While tangible progress relating to trade has been limited, markets remain optimistic regarding a good trade deal. Later today, we will upgrade our short-term outlook on the pound to bullish following recent strength.
GBP/USD is currently above 1.3520. EUR/GBP is mostly flat this morning, with the exchange rate above 0.8890. The pound is weaker against the Australian dollar while strengthening against the Canadian dollar. GBP/AUD is currently above 1.7250, while GBP/CAD is above 1.6950.
This is reasonably light week in terms of economic data relating to the pound. Later today, we'll see Markit manufacturing PMIs. On Wednesday, we'll get construction PMIs. Thursday is the key day, and we'll see housing market data including consumer credit, mortgage approvals as well as Nationwide housing prices. We'll also get Markit services PMIs. Services PMIs are watched closely given the UK's reliance on professional services. Prior to the holidays, Q3 GDP growth beat expectations (1.7% vs. 1.5% expected).
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.