Short GBP vs. EUR and USD in 2017 – RBC CM

Analysts at RBC Capital Markets suggests that their 2017 forecasts incorporate another significant leg lower for GBP and they position for that by spreading the risk equally across EUR and USD.

Key Quotes

“Three factors underlie our negative stance on GBP. Firstly, we anticipate a significant deterioration in the political backdrop once Article 50 has been triggered and the UK/EU negotiating positions become public. Growing expectations of a more conciliatory process are misplaced. Secondly, although the timing is uncertain, the economic data will deteriorate as they become “cleaner” of pre-referendum decisions and the real income squeeze on households starts to bite.”

“Finally, as has been the case in Canada and Japan, we expect the activity dividend from GBP weakness to be very limited, as FX shocks now largely play out through export margins rather than volumes. Our forecasts assume an orderly adjustment process and would be more bearish in the event of a funding crisis.”