Pound sterling is currently weakening against all major currencies except the euro and the Japanese yen. Yesterday, the pound was fairly weak at the outset of the day, but made back most of its losses by the end of the day. In general, the pound remains weak thanks to slowing growth across Europe. Given the UK's significant trading relationship with the Eurozone, the pound broadly tracks the fortunes of the euro.
Turning to recent news, Theresa May's government has suffered yet another defeat in the House of Lords as the upper house voted for an amendment that reduces the likelihood of a "no deal" Brexit. The amendment would give Parliament the authority to send ministers back to the negotiating table or abandon the Brexit process altogether. While amendments by the House of Lords can be overturned in the House of Commons (where Conservatives and the DUP have a slim majority), the increasing momentum against Theresa May is a significant concern.
In other Brexit news, Michel Barnier has warned that Brexit talks are in danger of collapsing over the Irish border issue. Specifically, Barnier has asked the UK to soften its "red lines" on Northern Ireland. Historically, news of a softer Brexit has helped the pound. More recently, Brexit developments are in the backseat as the pound trades as a function of economic data and monetary policy expectations. Thanks to weakening growth across the region, the outlook for the pound is worsening. Our short-term outlook on the pound is bearish, while our medium-term outlook on the pound remains neutral.
GBP/USD is currently above 1.3740. EUR/GBP is flat, with the exchange rate above 0.8770. The pound is down against the Australian dollar and down against the Canadian dollar. GBP/AUD is currently above 1.8260, while GBP/CAD is above 1.7640.
This is a relatively light week for the British pound economic calendar. Later today, we’ll see Markit manufacturing PMIs for April and mortgage approvals for March. We’ll also see the BRC shop price index for April and consumer credit for March. On Wednesday, we’ll see construction PMIs for April. On Thursday, we’ll see Markit services PMIs for April. Last week, Q1 GDP growth figures missed expectations.
As the pound trades lower, we are now bearish on the currency in the medium-term. The pound is now trading within normal conditions. This is based on a range of technical indicators looking at a weekly chart.