The cable nears the highest levels since March 11 as trades around the 1.2930 level. Notwithstanding, Jeremy Stretch from CIBC Capital Markets expects the pound to be on the defensive amidst weak macro backdrop. The analyst just sees sterling recovering when a Brexit deal is reached near to the deadline.
Key quotes
“A near-14% advance in headline monthly retail sales volumes has helped drive the annual rate back into positive territory for the first time since February. We’ve also seen an aggressive rebound in flash July PMI, with services sentiment registering the highest outturn since July 2015. Of course, the data is distorted by coming from such a low base. But looking ahead, we see some headwinds against this trend continuing. A rising tide of job losses as government support is progressively withdrawn risks an economic disappointment and sterling remaining on the defensive.”
“While we do not expect the BoE to sanction negative rates, the fact that 3m Libor has traded below the base rate since early July shows that investors remain wary of rate cuts ahead.”
“The countdown to Brexit at year-end continues and an agreement remains far from certain. Although one of the red lines, regarding the role of the European Court of Justice, seems to have been clarified, fishing rights and level playing field criteria remain unresolved. Expect the discussions to stretch into Q4. Only when right up against the deadline can we expect a deal and the sterling relief it will provide.”
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