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GBP/USD: Valuation test to take GBP/USD to 1.25 - SocGen

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Societe Generale FX Strategy Research comments on GBP direction in the aftermath of the UK elections noticing that Sterling is till supported by valuation.

" It has now bounced off 73, some 4% below current levels, three times since 1992 - in february 1993, December 2008 and October 2016.

We will probably test that level again this summer. That is likely to take GBP/USD to 1.25 but not to 1.20 and EUR/GBP above 0.90 but things have to get even worse before we can ponder levels above 0.95," SocGen argues.

" In the longer run, what drives the pound will be relative economic performance and policy. A minority government can't do the kind of damage to the economy a misguided one could do, but as growth slows, the MPC will remain on hold and as others raise rates. The contrast between MPC and FED or ECB may not be stark enough to trigger a sterling collapse from here, but will anchor it around these long-term historical lows," SocGen adds.

Source of the graph: Bloomberg Pro Terminal

Trader - Senan Fuchedzhiev


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