Renewed pressure on GBP to emerge in the run-up to Brexit – Danske Bank

Research Team at Danske Bank notes that the GBP has been amongst the worst performing currencies in the G10 space in 2016 as the Brexit has hit the GBP very hard.

Key Quotes

“We do not find a significant downside risk to the GBP despite a large negative current account and a negative net international investment position (NIIP), we still hold the view that Brexit justifies an undervalued GBP to offset the negative consequences of Brexit. We thus like to enter 2017 with a short GBP position, as we expect renewed pressure on the GBP over the three to six months in the run-up to when the UK government plans to trigger Article 50. Over the past months, markets have priced in a softer Brexit, which combined with the potential closer relationship between the US and the UK, has lowered the Brexit risk premium priced on GBP. In our view, the recent repricing of Brexit offers an opportunity to position for renewed GBP headwind in the first part of 2017.”