The British pound rose sharply yesterday, particularly against the US dollar, and continues to strengthen this morning. Yesterday, the pound initially fell after manufacturing PMIs missed expectations. While the manufacturing sector continues to expand at a good clip, the survey data fell short of expectations and was poor relative to Eurozone and German manufacturing PMIs. Later in the day, the currency spiked on a Financial Times (paywall) report suggesting that the UK was exploring the possibility of joining the Trans-Pacific Partnership (TPP) following Brexit. TPP is a trading bloc in the Asia-Pacific region. While most of the region's members are fairly distant from the UK, hopes for more trade are helping the currency nonetheless. As GBP/USD approaches 1.36, the currency is close to being overbought according to our technical indicators, but remains out of the danger zone for now. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.3590. EUR/GBP is down this morning, with the exchange rate above 0.8850. The pound is stronger against both the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7390, while GBP/CAD is above 1.70.
This is reasonably light week in terms of economic data relating to the pound. Markit manufacturing PMIs missed expectations (56.3 vs. 58 expected). Later today, 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.