GBP: We see limited further downside - MUFG

Derek Halpenny, European Head of GMR at MUFG, suggests that the formal signalling of a timeframe for invoking Article 50 was always expected to fuel Brexit anxiety and trigger pound selling.

Key Quotes

“That Article 50 will be invoked by the end of March and that the government plans to formally leave the Single Market has triggered heavy pound selling.

This selling should peter out with macro-economic conditions and broader global financial market conditions more important for the short-term direction for the pound – both of which are favourable. While the IMF downgraded its growth forecast for 2017, it raised its forecast for this year and the biggest surprise from the Brexit fallout has been the resilience of the economy.

Furthermore, the Balance of Payments data from Q2, released on Friday, revealed the UK’s large current account deficit was financed with ease by foreign investor inflows into portfolio securities. It is clear that Brexit uncertainty has not undermined the ability of the UK to draw capital from abroad. There is a long way to go in Brexit negotiations and departure from the Single Market does not mean certain elements of trade between the UK and the EU will not mirror Single Market trade conditions.”