GBP/USD has shown remarkable resilience in the wake of the USD strength. What’s next? Here is the view from Deutsche Bank:
Here is their view, courtesy of eFXnews:
We have revised our year-end GBP forecast higher but maintain our fundamentally bearish view for next year, based on asymmetric growth risks, subsiding capital inflows and political uncertainty.
The solid data to date, and the expected inflation pass-through from depreciation this year, reduce the prospect of further Bank of England easing, but is unlikely to shift them to a more hawkish stance given the downside risks to growth. Our focus is on political risks related to Brexit crystallizing next year. We see the recent High Court ruling””likely to be upheld by the Supreme Court–as raising the likelihood of a general election next year. While this need not raise the odds of a “hard” Brexit, the delay to the triggering of Article 50 will prolong uncertainty and weigh on investment. We also expect continued deterioration in capital inflows to put significant pressure on the UK’s broad basic balance, while depreciation does little to boost the trade surplus.
Sterling is cheap, but not cheap enough to attract inflows amid significant growth and political risks.
DB targets GBP/USD at 1.14, 1.12, 1.09, and 1.06 by the end of Q1, Q2, Q3, and Q4 of 2017 respectively.
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