The British pound is higher today (particularly against the US dollar), and has been strengthening throughout the week. Thanks to strong regional growth and rising rate hike expectations, the British pound remains in a bullish trend. Pound sterling is also benefiting from a particularly weak US dollar, which is currently trading at 3-year lows. Compared to its key regional peers (such as the euro), the pound is relatively weaker. Unfortunately, Brexit-related risks and relatively weaker economic growth continue to weigh on GBP. Turning to the latest Brexit news, the British government is proposing "mutual recognition" as a means to preserve financial services access to the EU. According to the Financial Times, the proposal calls for the UK and the EU to recognize each other's regulatory regimes as equivalent at the point of Brexit. Any future divergences would be monitored by an independent mechanism. The proposal is likely to be contentious, given that Michel Barnier has repeatedly ruled out access to the single market unless the UK accepts conditions including the free movement of people. Our short-term outlook on the pound is neutral, while our medium-term outlook is bullish.
GBP/USD is currently above 1.4120. EUR/GBP is flat, with the exchange rate above 0.8870. The pound is flat against the Australian dollar and the Canadian dollar. GBP/AUD is currently above 1.7720, while GBP/CAD is above 1.7610.
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. Later today, 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.