The pound continues to fall after rising sharply last Wednesday. Following the Autumn Forecast Statement, the focus for the pound is returning to Brexit. Looking at the latest news, Bloomberg is reporting that a Canada-style trade deal for the UK is looking more likely. If true, this would be bad news for the pound as the EU-Canada trade deal would limit the ability for British businesses to access the EU's economy. Financial services firms, in particular, are keen to maintain their 'passporting' rights which allows them to sell services to Eurozone-based customers. The other issue is that the Canadian free trade deal took many years to negotiate, and there is a risk that uncertainty continues for an extended period of time.
GBP/USD is currently just above 1.3290. EUR/GBP is up today and the pair is currently trading above 0.890. The pound is flat against both the Australian dollar and the Canadian dollar. GBP/AUD is above 1.7460, while GBP/CAD is just above 1.6930.
This week’s economic data includes the Autumn Forecast Statement as well as Q3 GDP numbers. Public sector net borrowing was higher than expected (8b vs. 7b expected) while the inflation report hearings contained no new surprises. The Autumn Forecast Statement contained few surprises, but suggested a weak outlook for growth. The second release of Q3 GDP figures met expectations (1.5%). Last week, CPI was below expectations while retail sales were better than average estimates.
After strengthening in the second week of October, we are now neutral on the British pound. The pound rebounded after senior Conservative Party leaders publicly backed Theresa May, suggesting that rumors of May's resignation were unfounded. The pound has been particularly strong against the US dollar and the euro in recent times. After looking overbought on a range of technical indicators, the pound is now back to trading within normal conditions.