Goldman Sachs on GBP: Risks further downside in case of a ‘hard Brexit’
|In its latest note on sterling, analysts at Goldman Sachs noted that they expect further declines in the GBP in next year, in wake of Brexit-related political uncertainty.
Key Quotes via eFX:
“Our view remains that Sterling is not yet 'cheap': our research implies that tradeweighted Sterling could fall around 20-40 percent relative to its pre-Brexit level for the UK current account to close to a 1.5 percent of GDP target, and that Cable could fall a cumulative 25 percent in response to the large uncertainty shock to the UK economy.”
“The main reason why we expect Sterling to fall further is that the political uncertainty linked to the process of leaving the EU and renegotiating trade agreements is, and will likely remain, elevated for a long period.”
“The process has not yet begun and, when Article 50 is triggered, uncertainty will increase further: what kind of deal the EU and UK agrees on will likely remain unclear for some time.“
“The main economic consequences are twofold: an economic slowdown owing to elevated political uncertainty that reduces investment, employment and consumption, and an adjustment to the UK external balance requiring a substantial decline in the current account deficit, particularly in the event of a "hard Brexit.”
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