Sell GBP/USD on any rebound above 1.24 - Natixis

Research Team at Natixis, notes the GBP/USD has stabilised in recent sessions due to the absence of negative news on the political front, even though the position of the British government is hazy given the infighting between Brexiters and Remainers.

Key Quotes

“One thing is certain, Theresa May will not renege on her promise to end the free movement of persons, while François Hollande has reiterated that the UK will have to pay the consequences. As yet, macroeconomic indicators remain mixed, as the last employment data was excellent and inflation is not rising as quickly as expected.

Even so, we remain negative on sterling. Growth will falter, the first estimate of Q3 GDP being expected to show growth slowed to 0.3% from 0.7% in Q2. Furthermore, economic agents are growing impatient, especially the banks. The British Bankers’ Association (BBA) has hinted that many banks intend to relocate part of their operations in Q1 2017, a statement that is likely to stoke market concerns and drive down sterling.

Unless the political climate deteriorates and/or Theresa May pushes with more force for a hard Brexit, the GBP/USD will correct more slowly in coming months, as the market is already very short on the British currency. For sterling’s slide to accelerate there would need to be new developments that are not in the least expected by the market.

In coming months, our target for the GBP/USD nonetheless remains for 1.18, especially in the immediate run-up to the activation of Article 50 in March 2017. However, the pair’s decline will also come about as a result of the greenback’s appreciation, bolstered by the Federal Reserve’s monetary tightening. We therefore recommend selling the GBP/USD on any rebound above 1.24.”