GBP outperformance is still likely, albeit at a more moderate pace - Nomura

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 12, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Delhi) - Research Team at Nomura, suggests that much of the recent GBP weakness can be explained by external factors, namely weak risk sentiment globally.

    Key Quotes

    “We think GBP is likely to resume trading more resiliently once the equity market calms down. We do not expect the UK to leave the EU, although market interest in the referendum has been rising since the New Year began. As we expect the BoE to start hiking and Brexit uncertainty to diminish by end-2016, we think EUR/GBP is still likely to trade below 0.70 by end-December.

    Nonetheless, the timing of BoE rate hike is likely to be delayed further to November from May, and the tug-of-war between Brexit uncertainty and monetary policy divergence has now become slightly GBP-negative. Thus, we now expect EUR/GBP depreciation to take a more gradual path. If the Brexit referendum is held in September as we expect, EUR/GBP could easily rise and fall by 3-4%, before and after the referendum, assuming UK voters to choose to stay within the EU.

    We still expect EUR/GBP to undercut 0.70 this year, and EUR/GBP depreciation is likely to accelerate in Q4 as Brexit uncertainty disappears and the BoE starts hiking. At the same time, we expect GBP to trade with greater volatility from end-Q2 to Q3. The GBP/USD forecast path is now lower and we see a possibility of GBP/USD testing 1.40 in mid-2016, while we expect GBP/USD to trade at 1.47 by end-2016, slightly higher than the current spot.”
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