The Bank of England’s (BoE) broad trade-weighted sterling index is now just 3% off levels traded in June 2016, before the Brexit vote. Some, no doubt, are arguing that this is an elimination of the Brexit risk premium on sterling, helped by new Prime Minister Keir Starmer’s desire to engage more closely with Europe, notes Chris Turner, FX strategist at ING.
Close to pre-Brexit vote levels
“While we have some sympathy with that view, we attribute the pound’s strength more to persistent UK inflation and limited appreciation of BoE rate cuts this year, plus the dollar’s fall in July on softer US price data.”
“Based on our medium-term fair value models, we view GBP/USD as fairly valued (i.e. not significantly undervalued) and we see fund managers reaching the same conclusions in surveys of buy-side investors as well.”
“We are still officially looking for three BoE rate cuts this year (versus the two currently priced in) and when UK data allows, we think sterling will move lower. The MPC rate meeting on 1 August will also be the first big opportunity since the UK election to hear what the BoE really thinks. We see this as a downside risk for sterling as well.”
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
