Economy & Currency Outlook 2017 to 2018 – BRITISH POUND.
This article is originally referred from FXPrimus Special Report.
Despite the 1st quarter of 2017 found Cable vulnerable following a period of significantly low liquidity and exposure to “flash crashes”, triggering Article 50 shifted investor sentiment.
This was also attributed to global growth and the optimistic outlook of the euro area.
On the contrary, STERLING did remain markedly below pre-Brexit levels for all 2017, and pre-Flash Crash level for nearly ½ of 2017.
While GBPUSD seemed to be, and still seems to be, a victim of political rage short positioning has failed to extend the pair strikingly lower, which added value to the currency’s medium-term worth, yet, inflation rose to a 6Yr high rate of 3.10%.
This leaves the British Pound far away from the annual inflation rate target of 2.0% set by the government in order to maintain price stability.
In addition, the flat-(ish) wage growth combined with very soft Retail Sales challenge investor confidence as consumer demand and growth are likely to remain under pressure.
Afar from balance sheet susceptibility and an exit bill price tag, POUND volatility will be driven massively by Brexit trade negotiations and whether a “soft” or “hard” Brexit is achieved between UK and the EU.
Keeping in mind the consequences of Brexit, diverging interests in the UK parliament, a rate hike after a long 10 years and the possibility for early elections, my view should be bearish.
In the hope of formulating a deal and a probable light-weighed hiking cycle I am expecting GBP/USD to remain above 1.27 for all of 2018 and possibly head towards $1.39 – $1.41.
Moreover, I do expect weaker macro-fundamentals.
Original Source: FXPrimus Special Report