The volatile pound rose decently last week, though the gains were still modest as compared to the decline a week earlier. GBP/USD regained the 1.30 handle and keeps above this level on Monday but struggles to proceed with the recent rally amid the conflicting signals.
The optimism was capped by another disappointing UK economic data. October’s service PMI fell to a seven-month low and the composite index was the weakest since July 2016. Importantly, business expectations fell to 63.1 in October – this is the weakest reading in over two years. The figures point to Brexit uncertainty is dragging down the UK economy.
Meanwhile, the latest Brexit developments look confusing as the reports on the upcoming deal were followed by the signals that the Irish border issue remains unresolved. The downside pressure on the pound is capped by a subdued dollar demand for now, while Brexit remains in market focus.
On Tuesday, May’s cabinet will meet to discuss the PM’s plan. Traders need to see a progress in order to send the sterling higher. Otherwise, GBP/USD will get back below 1.30 and could attract some profit-taking.