We believe that some of the traditional macro drivers for GBP, such as global growth and the UK housing and labour markets, are unlikely to be significantly impacted by the Brexit negotiations in the coming months.
We expect one final dip in GBP as Article 50 (A50) is formally triggered and as the EU formally responds and sets out its negotiating position.
We think the crystallization of risks and the start of the countdown to Brexit may prove to be the low in GBP and the opportunity to enter GBP longs.
We reiterate our view that the formal triggering of Article 50 will mark the final phase of sterling’s decline and mark the low point for GBP this year.
Our Q1/Q2 forecast for GBP/USD remains $1.15, although we concede that this target is being challenged. The scale of the GBP reaction will hinge on the EU’s initial response to formal triggering. We are not optimistic on this front. We expect that the EU will inject a dose of reality regarding the challenges the UK will face in forthcoming negotiations
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