British Pound Decline Against Dollar & Euro in its Infancy, Three Triggers to Further Weakness Cited

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Momentum and historical precedent set by previous bouts of Pound Sterling weakness have Bank of America nervous that their official forecasts for the currency are far too optimistic.

  • Pound to Dollar exchange rate today (15-10-16) = 1.2191, Pound to Euro exchange rate today: 1.1111
  • There are three events that will determine Sterling direction over three months
  • And data isn't one of them
  • Current peak-to-trough move in Sterling's decline only 18% of the way through relative to 1975; 63% versus 1992 and 33% versus 2008.

GBP was the second-worst-performing currency in the G10 space for the week ending 14th October.

"The Swedish Krona is the weakest of the G10 currencies this week - knocking the pound off its dismal perch for once," notes Kit Juckes at Societe Generale in a brief to clients, "GBP's fall may be eclipsed by the SEK move, but the pound has fallen by twice as much as any other major currency over the last month."

The Pound at one point plunged below $1.15 for the first time since 1985 and it also fell briefly under €1.10.

The latest decline was triggered by confirmation that the UK will go ahead and start the EU withdrawal in March 2017 and market perceptions of an increased risk of a so called hard-Brexit.

With no one really knowing what a hard-Brexit looks like layers of uncertainty remain, providing the perfect vacuum within which Sterling can fall further.

Yet, triggers to further weakness are needed, and those with an interest in the currency's future direction should be aware of what they look like. 

New research on the Pound by Bank of America Merrill Lynch Global Research suggests Sterling price-action will be dominated by three main events in the coming months.

The first is the Bank of England Quarterly Inflation Report (3rd November), the second is the Autumn Statement (23rd November) and the third is the timing of the triggering of Article 50 (sometime in 1Q 2017).

The first two events are relatively known quantities whereas the third is less so, and analysts Robert Wood, Kamal Sharma, Sebastien Cross and Mark Capleton think this will pose the greatest risks to the Pound owing to the uncertainty it poses to much-needed foreign investment flows to the UK.

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