[Calxy]

GBP sold off overnight in response to a report from the Fitch ratings agency that of the four large AAA sovereign debt issuers (US, Germany, UK, France), it was the most likely to be downgraded. This represents limited news because (a) it is not news - for example it is the only one of the four which does not have a stable outlook from the S&P ratings agency, and (b) Fitch stressed after the statement that there were no plans to change the UK rating.

Other news has been more positive for GBP. The October RICS housing market survey surprised to the upside again: the headline price balance rose by 13.3 points to 34.2, its highest outturn since December 2006 (ie well before the financial crisis). New buyer enquiries increased for the 12th consecutive month, although the pace of increase slowed slightly (the balance fell by 4.1 points to 31.0). Additionally, new instructions to sell rose for a fifth consecutive month and at its fastest pace since May 2007. Finally, the sales-to-stocks ratio, which has been a good guide to house price inflation in the past, rose for a 10th consecutive month in October to 29.7, from 29.0 in September. The BRC reported the strongest October retail sales for seven years. Total sales values rose by 5.9% y/y in October as a strong rise in non-food sales growth more than offset a further deceleration in food sales, the latter driven largely by falling food price inflation. The normally rather dour BRC described the results as "encouraging" and said it hoped the improvement in consumer confidence would be maintained into Christmas.

Risk conditions still appear to be supportive - the aggregate liquidity continues to improve for G10 FX and after a couple of weeks of decline, GBP-specific liquidity has also picked up - the recent profile is very similar to that of AUD/USD, suggesting that this is not a UK-specific story. IMF statement, along with the various central bank announcements from last week suggests that there is no reason to expect the liquidity fest to come to an end soon. So the general trading conditions should support GBP. Tomorrow is the all-important GBP-specific Inflation Report which may be giving investors pause, but it is less likely to surprise with a bearish tone than in previous quarters. In short, the sell-off following the Fitch statement offers a buying opportunity.