The British pound is enjoying a small rebound today. As global stock markets strengthen, fears of an extended rout are receding. Improving risk appetite is thus benefiting the currency. In general, the pound tends to strengthen alongside riskier assets such as stocks and commodities, and weakens during downturns. Turning to Brexit news, the pound fell sharply last Friday after the EU's chief negotiator (Michael Barnier) said that a post-Brexit deal was "not a given". According to Barnier, London had "substantial" objections to the EU's transition offer. The EU has refused to negotiate aspects of its transition deal. As the likelihood of a "hard" Brexit increases, the pound is selling off as a result. Looking at data, weak industrial production data had a limited impact on the currency last Friday. Thanks to the Bank of England's positive economic outlook for 2018, traders took the weak data in stride. Following the recent sell-off, we are downgrading our short-term outlook on the pound to neutral. Our medium-term outlook on the pound remains bullish.
GBP/USD is currently above 1.3850. EUR/GBP is flat, with the exchange rate above 0.8860. The pound is flat against the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7690, while GBP/CAD is above 1.740.
Looking at UK economic data this week, traders will be watching upcoming inflation and retail sales figures. Tomorrow is the big day, and we'll see the consumer price index, the retail price index and the producer price index. Traders will be primarily focused on the consumer price index. On Friday, we'll see retail sales growth. Expectations remain low, given recent weakness in UK consumer spending. Last week, the Bank of England signaled a positive economic outlook while Markit/CIPS services PMIs were below expectations.
As the pound pulls back, we are downgrading the currency to neutral 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 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.