The British pound is currently selling off against the US dollar, thanks to a broad USD rebound. The pound is mostly flat against its major global peers including the euro, the Australian dollar and the Canadian dollar. As GBP/USD continues to look overbought on a daily chart, the pair is due for a short-term pull back. Looking at recent news, year-over-year inflation met expectations (3%) and is trending lower following November's figures (3.1%). As the impact from Brexit-fueled inflation subsides, the outlook for UK inflation is also lower. Looking at the latest Brexit news, European Council President Donald Tusk has said the UK is welcome to stay in the EU if it has a change of heart (according to the BBC). Recent speculation regarding a second Brexit referendum has led to a series of comments from EU officials. Yesterday's news that the EU is looking to toughen up its stance on trade had a limited impact on the currency. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.3760. EUR/GBP is down slightly this morning, with the exchange rate above 0.8870. The pound is flat against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7310, while GBP/CAD is above 1.7140.
Looking at economic data this week, markets will be watching inflation and retail sales numbers. The consumer price index (3%) met expectations while the retail price index (4.1% vs. 3.9% expected) was ahead of expectations. Markets tend to focus on CPI instead of RPI figures. 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 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.