GBP / USD aims to trade sideways next year – HSBC

On December 24, negotiators from the UK and the EU reached an agreement on a trade deal, keeping the British pound high. Beyond the Brexit deal between the UK and the European Union, HSBC economists analyze how the UK will do to stay competitive compared to its current position. They estimate that the challenges facing growth will keep the pound in the lower performance range among G10 currencies.

Key statements:

Although the rally in the British pound in 2020 suggests that the forex market anticipated that a deal was more likely than a no-deal, the confirmation allows the forex market to assess any modest probability that has been associated with a ‘no-deal’ outcome. ‘. In our view, the announcement should keep the British pound appreciating in the short term, but further gains are likely to be limited as the deal appears largely discounted. “

“Inevitably, the EU will remain the UK’s largest trading partner, given its geographical proximity. Increasing trade barriers with the EU is highly unlikely to be offset significantly enough by any possible lowering of barriers with other players, especially if the UK-US trade agreement A weighted pound sterling by weaker trade would be a way to offset those costs. “

“We have seen suggestions in some quarters that the downside growth impact of Brexit will not matter as much, given the strong and likely volatile rebound of pandemic-related weakness that will occur simultaneously. But in our opinion any further downside to growth would make the British pound look less attractive when its peers are recovering at even faster rates. “

“Despite a strong performance against the USD in 2020, the GBP has underperformed its G10 peers. We believe that the underperformance is justified and is likely to continue into 2021. We see possible that the GBP-USD pair will generally trade sideways in 2021“.