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Brexit: Now for the GBP overshoot to the downside - SocGen

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 3, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Kit Juckes, Research Analyst at Societe Generale, estimate the risk of Brexit at 45% and the accumulated negative shock to the economy at 4-8% over five years.

    Key Quotes

    “The vote will take place at the end of Q2 and the pound was well below USD 1.40 within days of the referendum date being announced. We still think the odds of the UK leaving the Eurozone are around 45%, which is just a way of saying it’s a very close call, but with the current move we look for GBP/USD to end 2015 above current levels if the UK does decide to stay in the EU.

    Between now and the vote, we’ll see GBP/USD closer to 1.30 and EUR/GBP above 0.80. There’s too much uncertainty for bargain-hunters to buy the pound, and since one of the key planks of the ‘Britain Stronger in Europe’ campaign will be to stress the downside of leaving. Inevitably, that highlights downside risks to the economy which will be reflected in FX valuations.

    Sterling’s fall in recent weeks takes the real effective rate back to where it was a year ago – a long way above 2009 lows.”
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