Cloudy weather is a feature of the UK, and for politics, it got quite murky. No party won an outright majority and the Conservatives are forming a government with the Irish DUP. What’s next for the pound? Here are three opinions:
Here is their view, courtesy of eFXnews:
GBP: UK Elections: Valuation Test To Take GBP/USD To 1.25 – SocGen
Societe Generale FX Strategy Research comments on GBP direction in the aftermath of the UK elections noticing that Sterling is still 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.
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GBP: UK Elections: ‘Cloudy’ 2-Ways Risks For GBP With A Downside Bias – TD
TD Research comments on GBP direction in the aftermath of the UK elections noticing that the focus will now shift to the Brexit talks which set to begin in just 10 days.
“The near-term outlook for GBP is likewise clouded by the recent developments. The upside is that the SNP’s loss of support reduces the odds of a Scottish referendum.
However, the next few weeks will likely see the two-way risks intensify but with a bias to trade lower,” TD argues.
GBP/USD is trading circa 1.2722 as of writing.
GBP: UK Elections: ‘Murky’ GBP Outlook N-Term; Stay Sidelined – JP Morgan
JP Morgan Research comments on GBP direction in the aftermath of the UK elections noticing that the near-term outlook on GBP is murky.
“While decline in the support for SNP substantially reduces odds of another Scottish referendum and long-run GBP valuations are cheap on some metrics (GBP is now the second cheapest currency globally on a REER basis) political uncertainty will likely dominate in the coming days. In addition, the instability of the next government could weigh on the economy which was already exhibiting signs of softening, which in turn could also have dovish implications for the BOE.
These offsetting factors keep us on the sidelines on GBP till more clarity on these offsetting factors emerges,” JPM argues.
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