The eighth round of formal Brexit negotiations commence amidst warnings from the EU that any attempt to backslide on the Withdrawal Agreement would undermine any hope of a trade deal over coming weeks.
After that, UK introduced the Internal Market Bill (IMB) designed, in principle, to override parts of the Withdrawal Agreement (WA) signed in Q1 2020. The EU is dissatisfied and the pound fluctuates sharply.
Such risks appear overblown and the my view remains for bare bones FTA within the October 15 – mid November window.
The Fed’s changed its longer term goals (inflation averaging and adopting an asymmetric bias to unemployment), which may weigh on USD in the medium term and favor GBP.
The near 5.5% drop in cable from its highs at 1.35+ is of great concern. The pair has taken out strong support (55d MA at 1.2916) and below here lies the 200d MA at 1.2737. Resistance may find at 1.3278(March high) and 1.3482 (September high).
Brexit is re-emerging as a key driver for GBP, with the controversial new ‘UK Internal Market Bill’ raising concerns about no-deal Brexit once again. As a result, GBP has started to depreciate. Meanwhile, the UK has already been lagging behind peers in terms of the economic recovery. In terms of monetary policy, my view is that the MPC will cut to 0% at the November MPC and add £50bn QE.
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