The British pound is weak today, and is currently selling off against all major currencies including the US dollar, the euro and the Japanese yen. Looking at technical indicators, the pound is no longer looking overbought on a daily and weekly timeframe. Earlier, we wrote that the pound was looking susceptible to profit taking. Domestic politics and Brexit trade deal issues are driving the latest bout of weakness for the currency. Looking at the latest news, UK Brexit Secretary David Davis is pushing back against an October deadline for securing a transition deal. The EU has offered the UK a transition deal, whereby the country will be subject to all EU rules (including new EU rules) without any voting rights for a period of 21 months following Brexit. The jurisdiction of EU courts and the issue of new EU rules have been contentious. According to Bloomberg, Davis is refusing to agree to a transition deal unless the terms of a trade deal are clearer. Looking at domestic politics, Theresa May is under pressure as the House of Lords has pointed out "crucial flaws" in the European Union (withdrawal) bill. As the bill has been passed by the lower house of Parliament, the House of Lords is not expected to veto the bill. Rumors regarding a no-confidence vote and calls for Philip Hammond to resign are further complicating the picture for May. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.4010. EUR/GBP is up, with the exchange rate above 0.8810. The pound is flat against the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7380, while GBP/CAD is above 1.7330.
This is a reasonably light week for economic data relating to the pound. Later today, we’ll see consumer credit and mortgage approvals. On Wednesday, we’ll see Gfk consumer confidence. On Thursday, we’ll get Markit manufacturing PMIs. Finally, on Friday we’ll get construction PMIs. Last week, Q4 GDP growth was ahead of expectations.
As the pound continues to strengthen, 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.