The British pound remains at multi-year highs against the US dollar. GBP/USD has not been this strong since the 2016 Brexit vote. Looking at the pound versus its major peers today, the currency is flat against the US dollar and the euro, while gaining against the yen. Today is a fairly important day for the pound thanks to upcoming inflation figures in a few hours. As we have written before, expectations for inflation remain fairly high. As the impact from Brexit-fueled inflation subsides, we expect inflation to begin decelerating this year. The consensus estimate for year-over-year CPI is currently 3%. Looking at the latest Brexit-related headlines, the Financial Times is reporting that the EU has toughened its conditions for any trade deal. Specifically, the EU is now demanding that the UK abide by terms on immigration, external trade agreements and fishing rights for two years after it leaves the European Union. So far, reactions in currency markets have been limited. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.3780. EUR/GBP is flat this morning, with the exchange rate above 0.8870. The pound is down against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7310, while GBP/CAD is above 1.7130.
Looking at economic data this week, markets will be watching inflation and retail sales numbers. Later today, we'll see the producer price index and the consumer price index. With the impact of Brexit-fuelled inflation likely to be waning, the consensus estimate for CPI (3%) remains high. On Thursday we'll get the RICS housing price balance. Finally, on Friday we'll see retail sales. Last week, manufacturing and industrial output beat expectations.
As the pound strengthens on weakness in the USD and Brexit 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.