Brexit related trade anxiety has resurfaced over the past week. A ‘no-deal’ would slow the UK’s post-lockdown recovery. Economists at ANZ forecast EUR/GBP and GBP/AUD at 0.92 and 1.75 respectively.
Key quotes
“In the absence of an improvement in the trade talks, sterling is likely to remain under pressure. The end of the furlough scheme and rising unemployment are disinflationary. The surge in the debt stock is bringing forward calls for a rise in the tax burden and monetary policy will stay very loose for an extended period. That can include additional quantitative easing and potentially negative interest rates.”
“Unless there is a compromise from both sides, the risks to investment and hiring from heightened trade uncertainty will rise. The policy mix is also unsupportive whilst, in a low inflation world, currency depreciation can help to boost competitiveness.”
“Our forecasts look for EUR/GBP to move towards 0.92 in coming months with GBP/AUD declining towards 1.75. Broad based GBP weakness has been evident across the board and in the absence of a trade deal, that trend may extend.”
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