Pound sterling is mixed today. The pound is selling off against safe havens including the US dollar and the Japanese yen, while strengthening against the euro and the Australian dollar. This is a critical week for the pound given upcoming events including the European Council meeting in Brussels and a Bank of England meeting. A Brexit transition deal may be announced at the upcoming European Council meeting. Hopes for a Brexit transition deal have helped the pound climb against its closest peers in recent history. Looking at EUR/GBP, the pair continues to weaken (as the pound strengthens). While the Bank of England is not expected to raise rates, Governor Carney is likely to signal another rate hike in the near future.
Turning to the latest Brexit news, Foreign Secretary Boris Johnson has said that there will no oversight from the European Court of Justice, calling the idea "BBC claptrap". This contradicts Theresa May's earlier statement that "EU law and the decisions of the ECJ will continue to affect us". Johnson also dismissed the idea of making future payments to the EU. In other news, a House of Commons committee has recommended extending the transition period in order to negotiate the complex process of leaving the EU. Anti-EU members of parliament including Jacob Rees-Mogg have criticized the document as a "report by the high priests of Remain". Our short-term outlook on the pound is neutral, while our medium-term outlook is bullish.
GBP/USD is currently above 1.3920. EUR/GBP is down slightly, with the exchange rate above 0.880. The pound is up against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.8090, while GBP/CAD is above 1.8250.
This is a fairly heavy week for economic data and events from the United Kingdom. Thursday is the big day, given that a Bank of England meeting is scheduled. The Rightmove house price index accelerated from previous figures (2.1% vs. 1.5% prior). On Tuesday, we’ll see the consumer price index, core consumer prices, the producer price index, and the retail price index. Consensus estimates are calling for inflation to decelerate in February. On Wednesday, we’ll see average earnings, jobless claims and public sector borrowing for February. On Thursday, we’ll see retail sales and potentially see the announcement of a Brexit transition deal during the European Council Meeting in Brussels. The Bank of England meeting is also scheduled for that day and includes an interest rate decision, a monetary policy report and the BoE’s meeting minutes. The Bank is expected to maintain the status quo on Thursday. Last week, Chancellor Philip Hammond upgraded the UK growth forecast in his Spring Statement
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.