Pound sterling is higher against all major currencies today. The pound is currently making the biggest gains versus the US dollar and the Japanese yen. Last week, the pound ended the week slightly lower against major peers such as the euro and the US dollar. While traders did not expect the BoE to raise rates, the pound weakened significantly after the institution lowered its growth and inflation forecast.
Turning to recent developments, Prime Minister Theresa May wrote "You can trust me to deliver" in a piece regarding Brexit published in the Sunday Times. May has asked all sides to make compromises, in a possible warning to deeply divided cabinet ministers. Last week, Foreign Minister Boris Johnson called the prime minister's customs partnership proposal "crazy". According to the Sunday Telegraph, a dozen of her 28 cabinet ministers are planning on blocking the partnership proposal. The issue of the future commercial relationship between the EU and the United Kingdom remains a stumbling block for the current government. Both the customs partnership proposal and "maximum facilitation" (which includes a hard border with Ireland) have significant pros and cons. As the House of Commons leans pro-European Union, a deeper trading relationship with the EU is most likely to get through Parliament. This being said, pro-Brexit Conservatives are fiercely opposed to anything except a clean break from the trading bloc.
As regional growth decelerates, the political future of Europe is likely to weigh on the pound going forward. The customs union issue remains a big concern for pound traders. Another growing concern is the return of "Euroscepticism" in the EU. As we wrote in today's euro daily update, Italy's new government is likely to weigh on the euro (and ultimately the pound given its close relationship with the Eurozone). Our short-term and medium-term outlook on the pound is bearish.
GBP/USD is currently above 1.3550. EUR/GBP is up slightly, with the exchange rate above 0.8820. The pound is up slightly against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7960, while GBP/CAD is above 1.7320.
Following last week’s BoE interest rate decision, this is a light week for the British pound economic calendar. Tomorrow, the most important day, we’ll see wage growth, the claimant count and the unemployment rate. We’ll also hear Governor Carney speak at the inflation report hearings at the House of Commons. Last week, the Bank of England surprised pound traders by outlining a weak forecast for growth and inflation this year.
As the pound weakens, we are now bearish on the currency in the short-term. The pound is now trading within a normal range. This is based on various technical indicators on a daily chart.
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.