The strength of the GBP over the summer was somewhat of an enigma. In the end, it was really a USD weakness story. It was only natural that the GBPUSD pair benefitted from record flows of USD weakness. However, the path ahead for the GBP looks more complicated now.

The fact that retail sales rebounded more than expected in July was overlooked by the market. The m/m reading came in at 13.9% vs 8.3% expected which on the face of it seems great. However, the market did not get carried away as job cuts keep rolling in, consumer confidence remains low, and the potential of more local lockdowns remains in place.

On top of the general caution, there are some weighty risks ahead. The first if the UK’s government furlough scheme comes to an end in October. How many companies have been holding back redundancies until the end of the scheme? Also, how many companies will say, ‘you can keep receiving 80% of your pay or you can lose your job?’

The second is the spectre of Brexit. It feels like the UK has been stuck in a Narnia like Brexit world where it is ‘always winter, but never Christmas’. The received wisdom is that the functional deadline for getting Brexit organised is the end of October to allow enough time for due process before the official year-end deadline. Recent relations at the time of writing have been very ‘so-so’, with Britain keeping to a hard-line negotiation with Dominic Cummings as Johnson’s chief adviser.

The above two issues will weigh on consumer sentiment. Of course, it will. Jobs falling, UK dropping out of the EU with a hard Brexit, and a fundamental shift in consumer spending. The UK needs consumer spending as around 63% of the UK’s output comes from the consumer. This is compared to around 50% in France and Germany.

So, in short, be careful around the GBP. Prepare for volatility and either 1) be nimble around the news flows or 2) hold a long term position according to your bias and ignore the noise.