Pound sterling is mostly higher today. The British pound is currently strengthening against all major currencies except the Australian dollar. The currency is the strongest against the Japanese yen today. Yesterday, the pound strengthened against the euro after Italy's government demanded debt relief from the European Central Bank. Other European currencies, such as the Swiss franc, also strengthened against the euro yesterday.
Turning to the latest Brexit developments, the main news today is that Theresa May's government is looking to remain in the EU's customs union following Brexit. We reported on the story in yesterday's edition of the pound daily update, although reactions in the currency were fairly limited at the time. This temporary measure would allow May to remain committed to leaving the customs union, while delivering a "smooth and orderly" Brexit. So far, more details such as a possible sunset clause have not been announced. As the risk of no-deal Brexit diminishes, the pound is rallying as a result.
While positive news relating to Brexit is welcome news for the currency, the pound remains in a bearish trend. Given the ongoing slowdown across Europe, the pound is more likely to continue weakening against the US dollar. In an environment of weak growth, issues such as debt and deficits return to the forefront. As a result, expect more volatility and weakness going forward. Our short-term and medium-term outlook on the pound is bearish.
GBP/USD is currently above 1.3520. EUR/GBP is down, with the exchange rate above 0.8720. The pound is down slightly against the Australian dollar and flat against the Canadian dollar. GBP/AUD is currently above 1.7950, while GBP/CAD is above 1.7270.
Following last week’s BoE interest rate decision, this is a light week for the British pound economic calendar. YoY wage growth excluding bonus (2.9%) and the unemployment rate (4.2%) met expectations. The claimant count (31.2k vs. 7.8k expected) was worse than expectations. Later today, we'll hear a speech by MPC member Haldane. Last week, the Bank of England surprised pound traders by outlining a weak forecast for growth and inflation this year.
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.