GBP/USD to end the year at 1.30 as sterling challenges compounded by brexit and pandemic
The UK has lagged most G10 counterparts during the pandemic despite the UK data outperforming, but as the result of low market expectations rather than real outperformance. Bipan Rai from CIBC Capital Markets believes that expectations will remain low moving forward, as the UK economy will face headwinds beyond those expected from Brexit uncertainty.
Key quotes
“The most recent jobs report shows that employment has dropped to levels not seen since the financial crisis. Survey data suggests that expectations of job cuts are discouraging discretionary spending, which in turn is impacting business decisions. With the government furlough scheme ending in October, we expect a slowdown in growth as we head into Q4, unless an extension is announced.”
“Weakness in domestic fundamentals will be made worse by Brexit risks, especially as we approach the end of the transition period. The next round of talks will begin on September 7, though unless concessions can be made, progress will be limited. We do not expect to see GBP strength until a deal is agreed upon, as our base case is still for some form of skinny trade agreement in Q4.”
“Q4 2020: 1.30 | Q1 2021: 1.30”
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