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Brexit could see GBP decline by as much as 15-20% - Goldman Sachs

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Feb 16, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    Research Team at Goldman Sachs, notes that since November, Sterling has weakened by around 8% on a trade-weighted basis.

    Key Quotes

    “There is no shortage of explanations for the decline – over this period, Bank of England communication has become more dovish, the ECB surprised hawkishly relative to market expectations in its December meeting, the Fed hiked, markets have fallen on China concerns and, finally, ‘Brexit’ has moved into sharper focus.

    We argue that, if the UK voted to leave the EU, the UK’s current account deficit would still be a source of vulnerability despite some Recent improvement. An abrupt and total interruption to incoming capital flows in response to a ‘Brexit’ could see the GBP decline by as much as 15-20%. So far, the declines in Sterling are consistent with the declines in UK rates and the global risk backdrop, but some signs of a ‘Brexit’ risk premium are appearing. Nevertheless, our base case assumes the UK will remain in the EU, and that cyclical strength should eventually re-send EUR/GBP back below 0.70. We forecast EUR/GBP at 0.68 and GBP/USD at 1.40 in 12 months.”
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