Analysts at MUFG Bank argue that this year will be another year of uncertainty related to the United Kingdom’s departure from the European Union that will continue to hinder economic growth and hence the pound.
Key Quotes
“If the negotiation period is a mere 11mths, there is little prospect of much beyond a ‘barebones’ FTA. Indeed, the period available will be less. Setting out the terms of negotiations likely means a start date sometime in March. Then ratification in London and across the EU would take additional time before the end of the year (...) With much unresolved, a close alignment from day one is very unlikely and hence the financial markets are set to price a deal that involves increased trade frictions that will impact economic growth. This scenario combined with the fact that the UK economy is already weak leads us to believe that the BoE will ease its monetary stance – probably in Q2; at the May meeting.”
“The December MPC vote of 7-2 highlights the skew in risk toward a rate cut and we see the economic backdrop justifying that, which will weigh on GBP in H1 this year.”
“The fact that we see only a modest removal of Brexit uncertainty while an FTA is negotiated between the UK and the EU and given we expect a BoE rate cut, possibly in May, we see the pound remaining flat with downside risks through H1. As we move toward year-end, assuming progress is made toward an FTA, even if only incorporating barebones, we would expect GBP to then strengthen more notably.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
GBP/USD stays below 1.2450 after UK employment data
GBP/USD trades marginally lower on the day below 1.2450 in the early European session on Tuesday. The data from the UK showed that the ILO Unemployment Rate in February rose to 4.2% from 4%, weighing on Pound Sterling.
EUR/USD steadies above 1.0600, awaits German ZEW and Powell speech
EUR/USD is holding above 1.0600 in the European morning on Tuesday, having hit fresh five-month lows. The pair draws support from sluggish US Treasury bond yields but the rebound appears capped amid a stronger US Dollar and risk-aversion. Germany's ZEW survey and Powell awaited.
Gold price holds steady below $2,400 mark, bullish potential seems intact
Gold price oscillates in a narrow band on Tuesday and remains close to the all-time peak. The worsening Middle East crisis weighs on investors’ sentiment and benefits the metal. Reduced Fed rate cut bets lift the USD to a fresh YTD top and cap gains for the XAU/USD.
SOL primed for a breakout as it completes a rounding bottom pattern
Solana price has conformed to the broader market crash, following in the steps of Bitcoin price that remains in the red below the $65,000 threshold. For SOL, however, the sensational altcoin could have a big move in store.
Key economic and earnings releases to watch
The market’s focus may be on geopolitical issues at the start of this week, but there is a large amount of economic data and more earnings releases to digest in the coming days.