Kit Juckes, Research Analyst at Societe Generale, points out that the British Government’s decision to trigger Article 50 and start the process of leaving the EU is making all the headlines today.
Key Quotes
“So, the Article 50-triggering letter is signed and will be handed over at 12:20 BST. The pound’s down about half a percent though there’s no logic in that. Today’s ceremony changes nothing. A divided Great Britain decided to leap lemming-like into the sea months ago, led by a Prime Minister who promises a bright future but has no clear road-map showing us ho to get there. Sterling, in trade-weighted terms, is very cheap. But then real bond yields, in absolute and relative terms, are very low (even if they’re now just above -2%). And until we get Q4’s data, the current account deficit is huge at 5.1% GDP (it will get smaller in Q4 but it will still be huge).”
“Where the pound goes now depends to a very large degree on economic data. The political shock is surely mostly priced in. But the danger is that the economy slows even as the UK has a sticky inflation rate. That would leave the MPC navigating sot growth and a bit of inflation, and leave UK real rates and yields anchored while elsewhere -notably in a resurgent Eurozone – they rise. That is why we remain bullish of EUR/GBP over the medium term. The dangers to that trade, French politics and UK economic resilience, both seem smaller than the likelihood we have a serious look at parity between the pound and the euro in the years ahead.”
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