GBP: Risks remain concentrated around the triggering of Article 50 - Westpac
|Tim Riddell, Research Analyst at Westpac, notes that the resilience of UK consumers and solid data releases stabilised GBP during Q4’16 and both are now likely to falter.
Key Quotes
“The growing likelihood of difficult Brexit negotiations will depress confidence, increase uncertainty and undermine already weak investment intensions.”
“Additionally, GBP’s post Brexit-vote fall is now seeing higher import prices feed into high street inflation, as widely forecast. Reduced discretionary income effects will lower domestic activity. Another danger for UK would be if foreign asset owners demand a higher risk premium on their UK assets, causing both assets and GBP to fall. Reduced speculative shorts seen since November highlight GBP’s path of least resistance being downwards.”
“Interim rebounds should be capped in the 1.22-1.24 area. The “flash crash” GBP/USD lows in the 1.1860s will act as a medium term attraction.”
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