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GBP/USD: Brexit is priced in - BTMU

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 14, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Guatemala) - Analysts at Bank of Tokyo mitsubishi explained that the BOE trade-weighted value of the pound declined by 2.9% in December, the worst monthly performance for the pound since January 2013.

    Key Quotes:

    "The pound has declined by a further 2.0% since the start of January leaving the pound only marginally stronger from the closing level at the end of 2014. As always, there is no one single explanation for this under-performance but more mixed economic data and the general increased risk aversion are certainly factors. However, there has also been a notable increase in focus on ‘Brexit’ and recent developments suggest this issue will increasingly influence pound sentiment over the coming months."

    "From an FX perspective, there is increasing evidence suggesting that a ‘Brexit’ risk premium is now priced into the pound. Our short-term models for GBP/USD and EUR/GBP both show that current pound spot rates are trading at a (pound) discount to our short-term fair-value estimate by -2.6% and - 4.7% respectively. Our sense is that these divergences reflect a portion of ‘Brexit’ risk premium built in since mid-December. The EUR/GBP divergence clearly began when PM Cameron confirmed progress on a deal on 18th December."
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