GBP: Volatility comes to the rescue - BBH

EU's chief negotiator for Brexit, Barnier, injected volatility into sterling, when he first formally acknowledged that the talks reached an impasse, sterling sold off on ideas that the UK could leave the EU without a deal, explains the research team at BBH. 

Key Quotes

“Later, when he suggested a willingness to consider a two-year transition phase, sterling recouped its losses and more.  There was some follow-through buying ahead of the weekend that lifted sterling to $1.3340.  This is an important area from a technical perspective.  It corresponds to a 50% retracement of the leg down in sterling that began on September 20 from nearly $1.3660.  It is also where the 20-day moving average is found.  The daily technical indicators are supportive, and the next the 61.8% retracement is found near $1.3415.”  

“The prospects of a UK rate hike as early as next month has protected sterling's downside.  Next week, the UK reports on inflation, labor, and retail sales.  We anticipate that the investors will be particularly sensitive to the data.  The market, according to Bloomberg calculations of the Fed funds futures strip and sterling Overnight Index Swaps, investors a little more confident that the BOE hikes rates in November than the Fed hiking in December.  Data that makes the market question this would spur sterling sales.”