Weekly Note – Pessimism & the Pound’s Prospects

Pessimism & the Pound’s Prospects

Good Morning,

After another horrible week for Sterling on the foreign exchange markets, it has become all too easy to be overly bearish. There can be little doubt that the UK faces unprecedented political challenges in exiting the European Union and given the likelihood that Brexit will ultimately mean no access to the single market, the economic challenges will be monumental as well.

So, with a weaker Pound being part of the required rebalancing for the UK, should we be embracing the 20% fall in recent months or panicking? The chart below shows the Sterling exchange rate back to the 1970s. The current weakness is the third period of accelerated decline in the last thirty years, and is very much in line with the magnitude of previous slumps. However, given we are close to absolute low levels last seen in the 1970’s, is there room for further GBP weakness?

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GM360 Note – 21st October 2016

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