Fading Sterling Optimism

Fading Sterling Optimism

Swissquote Ltd  | Apr 16, 2018 11:35

In our view GBPUSD rally to 1.4280 is more a function of USD weakness them purely confidence in the UK. We remain slightly bearish on the outlook for the sterling. Despite general optimism driven by the positive progress in Brexit talks, driven by failure of economic recession post-Brexit predictions to materialise and strength of trading partners, the UK is in a fragile place.

There is increasing evidence of a global slowdown which will manifest itself in weaker UK growth and inflation. This will also decelerate BoE interest rate expectations providing USD will sustained yield differential and rotating investors back into USD from GBP.

Finally, increased focus on complex trade talks, led by US/China, will likely push Brussels into a tougher stance on UK relations. 'Break throughs' will become hard and harder to achieve. We think the market was muted in pricing in proposals for a border between the Republic and Northern Ireland. Given the complexity of the issue both from a Brexit economic standpoint and socially/politically, we should have seen higher GBP volatility. In regards to Brexit, investors have clearly been conditioned to ignore short-term hype. Hences the lack of movement. UK-EU must avoid a hard border of extensive custom checks. The Republic and Northern Ireland will plague negotiations moving forward. This is one of those convergence issues that make the UK-EU relationship so difficult to unwind.

Disclaimer: While every effort has been made to ensure that the datat quoted and used for the research behind this document is reliable, there is no guarantee that it is correct, and Swissquote Bank and its subsidiaries can accept no liability whatsoever in respect of any errors or omissions, or regarding the accuracy, completeness or reliability of the information contained herein. This document does not constitute a recommendation o sell and/or buy any financial products and is not to be considered as a solicitation and/or an offer to enter into any transaction. This document is a piece of economic research and is not intended to constitute investment advice, nor to solicit dealing in securities or in any other kind of investment.

Although every investment involves some degree of risk, the risk of loss trading off-exchange forex contracts can be substantial. Therefore if you are considering trading in this market, you should be aware of the risks associated with this product so you can make informed decisions prior to investing. The material presented here in not to be construed as trading advice or strategy. Swissquote Bank makes a strong effort to use reliable, expansive information, but we make no representation that it is accurate or complete. In addition, we have no obligation to notify you when opinions or data in this material change. Any prices stated in this report are for information purposes only and do not represent valuations for individual securities or other instruments.

Swissquote Ltd

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