24 Dec 2015
Chasing GBP upside in 1H16 may be futile – ING
FXStreet (Delhi) – Viraj Patel, Foreign Exchange Strategist at ING, suggests that the constructive UK economic story and firming prospects of a BoE lift-off means that on the surface GBP should continue to perform well into the turn of year.
Key Quotes
“The hawkish repricing of the BoE story will provide a brief window of opportunity for GBP upside. But we suspect GBP’s outperformance will be short-lived; markets will swiftly turn their attention to the looming Brexit risks soon after a 2Q16 BoE hike. Moreover, any downside protection from the positive Fed spill over channel (in the form of higher UK rates) may dissipate, while a risk-off market would further weigh on GBP given its Achilles’ heel of a large current account deficit. We forecast a low-point in GBP/USD at 1.40 in 2H16, while EUR/GBP could correct back up to 0.72 in line with the EUR’s broad recovery.”
Key Quotes
“The hawkish repricing of the BoE story will provide a brief window of opportunity for GBP upside. But we suspect GBP’s outperformance will be short-lived; markets will swiftly turn their attention to the looming Brexit risks soon after a 2Q16 BoE hike. Moreover, any downside protection from the positive Fed spill over channel (in the form of higher UK rates) may dissipate, while a risk-off market would further weigh on GBP given its Achilles’ heel of a large current account deficit. We forecast a low-point in GBP/USD at 1.40 in 2H16, while EUR/GBP could correct back up to 0.72 in line with the EUR’s broad recovery.”