The British pound is up today after strengthening yesterday. Yesterday, pound sterling was boosted by higher-than-expected inflation figures. Following last week's Bank of England monetary policy meeting, expectations for a rate hike in May are rising. While recent comments by chief EU negotiator Michel Barnier and the global sell-off in stock markets have hurt the pound, the longer-term outlook remains bullish. As we argued in a recent commentary, rate hike expectations, strong regional growth and the dynamics of the discussions point to a stronger pound. Today, the currency is strengthening despite higher-than-expected US inflation figures. As we wrote in our US dollar daily update, fears of inflation spiraling out of control seem unlikely given falling commodity prices and base effects. Turning to the latest Brexit news, Boris Johnson outlined his vision for post-Brexit Britain in a recent speech. Specifically, he argued that the UK should leave the customs union while developing its own regulations towards industries such as financial services. Our short-term outlook on the pound is neutral, while our medium-term outlook is bullish.
GBP/USD is currently above 1.3960. EUR/GBP is flat, with the exchange rate above 0.8880. The pound is up against the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7720, while GBP/CAD is above 1.7540.
Looking at UK economic data this week, traders will be watching upcoming inflation and retail sales figures. The consumer price index (3% vs. 2.9% expected) was ahead of expectations. The retail price index (4% vs. 4.1% expected) were slightly below estimates while the producer price index (4.7% vs. 4.2% expected) was ahead of expectations. 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.