The British pound has suffered from declines over the last two trading sessions. Following Friday's sell-off, yesterday was another weak day thanks to the global stock market downturn and weak UK economic data. Earlier in the day, Markit/CIPS services PMIs came in below expectations, causing the pound to start weakening. As the US stock market plunged later in the day, the sell-off in the pound accelerated. Unlike safe haven currencies such as the US dollar, the pound tends to weaken during global downturns. If the stock market rout continues today, expect the pound to keep weakening. Looking at the latest Brexit-related headlines, there are few notable developments today. Yesterday, Theresa May's government ruled out the possibility of the UK remaining in the customs union following Brexit. Our short-term and medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.3980. EUR/GBP is flat, with the exchange rate above 0.8850. The pound is up against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7770, while GBP/CAD is above 1.7510.
Looking at UK economic data this week, traders will be focused on upcoming PMIs and a Bank of England meeting. Markit/CIPS services PMIs were below expectations (53 vs. 54.1 expected). Earlier today, BRC retail sales were in line with previous figures (0.6%). Tomorrow, we’ll see Halifax house prices. Thursday is the key day, and markets will be focused on Governor Mark Carney’s outlook for the future. While no rate hike is expected this week, expectations are rising for more rate hikes this year. On Friday, we’ll see industrial and manufacturing output. Last week, Nationwide housing prices were significantly 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 trading within normal conditions. This is based on a range of technical indicators looking at a weekly chart.