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Brexit: Sterling still undershooting – ANZ

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Mar 9, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    Research Team at ANZ, suggests that the date for the EU referendum (23 June) has been set, the politicians have declared their respective positions, and sterling has taken a pounding.

    Key Quotes

    “It is interesting that despite a clearly observable rise in support for the ‘remain in the EU’ camp since the deal with the EU was reached, the pound has fallen.

    Following dreadful guidance from opinion polls in the Scottish referendum and general election, investors are shunning the pollsters and selling the pound. Whether or not this is justified on a valuation basis is debatable. OECD estimates suggest the pound is fairly valued vs USD; Big Mac fair value estimates say the pound is 12.5% undervalued vs USD and relative producer prices suggest it is 25% undervalued. No wonder economics is called the ‘dismal science’, but whatever one’s bias about fair value estimates is, it cannot be argued that cable is overvalued.

    We had anticipated a move into a 1.35-1.40 range vs USD and that has effectively been achieved. While uncertainty will continue based on our expectation that the UK will remain in the EU, we do not see the justification to aggressively revise our cable target lower. If anything, given robust domestic growth, the question should be: does current weakness present a medium-term buying opportunity?”
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