The British pound is mixed today. The currency is selling off against the US dollar and the euro, while strengthening against the Japanese yen and the Australian dollar. There have been quite a few pound-related headlines in recent days. European Commission officials rejected a City of London proposal to strike a free trade deal relating to financial services. The EU is very unlikely to allow financial services firms to continue "passporting" their services into the EU according to a story by Reuters. Under current regulations, UK-based firms do not require additional licensing in order to service customers based in the EU. Any news regarding the inclusion of financial services in a broader free trade deal is therefore likely to help the pound. In other news, Mark Carney's comments have helped the pound as the Bank of England's outlook for growth and inflation improve. Yesterday, we published a commentary arguing that the longer term bull case for the pound is now stronger thanks to the higher probability of tighter monetary policy. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.410. EUR/GBP is flat, with the exchange rate above 0.8740. The pound is up against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7670, while GBP/CAD is above 1.7450.
This is a reasonably light week for economic data relating to the pound. BoE consumer credit (£1.52 vs. £1.3b) and mortgage lending (£3.68b vs. £3.45b) were ahead of expectations. Mortgage approvals (61.0 vs. 63.5 expected) were below expectations. Gfk consumer confidence (-9 vs. -13) was better than expected). Nationwide housing prices beat expectations (3.2% vs. 2.5% expected). Later today, 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 looking overbought. This is based on a range of technical indicators looking at a weekly chart.