GBP: Mismatch between UK & EU goals points to political stalemate - ING
According to the analysts at ING, a simple application of game-theory would suggest that both sides seeking to run with their own agendas – and trying to maximise domestic gains – will only lead to a sub-optimal economic outcome for both the UK and EU in the short-term and will hurt GBP.
Key Quotes
“There’s nothing stopping GBP from trading with a 5% short-term risk premium in a throwback to price action seen in October 2016 (after the Conservative party conference).”
“Given that the UK has more to lose from a ‘cliff-edge’ Brexit, GBP markets would have to bear the initial cost of this lack of clarity. The risks are that prolonged uncertainty over the UK investment climate leads to a more permanent loss of investment – requiring further downward GBP adjustment.”
“This is the scenario that we think will take GBP/USD below 1.20 – and EUR/GBP up to 0.90 – this year.”
Author
Sandeep Kanihama
FXStreet Contributor
Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.
