GBP: Down on its luck - ING

Analysts at ING suggest that the UK pound has been down on its luck amid a tough post-Brexit referendum backdrop. But the year ahead should see GBP bulls holding onto what they've got – especially now that we're technically 'halfway there' when it comes to resolving Brexit, they further add.

Key Quotes

“While the next stage of Brexit negotiations will be much more testing for our positive GBP call - and may require living on a prayer at times – we do have Faith (George Michael) that politicians are on a path to delivering an economically rational Brexit. A transition deal until at least the end of 2020 - and the partial reduction in uncertainty that this brings - would help alleviate the cliff-edge fears of UK businesses. This could see some of the cyclical pessimism over the UK economy priced out of GBP - although the semantics of a transition period matter for how forceful any positive GBP re-rating story will be. We have a conviction call for GBP/USD to move up to 1.40 in 1Q18.”

“Despite our constructive view, it would be remiss to claim that The Only Way Is Up (Yazz) for the pound - especially when taking stock of the fragile UK political backdrop. While it doesn't appear that Theresa May will be Walking Away (Craig David) from all the Brexit and domestic political troubles in her life, any factor that meaningfully pushes us closer towards a WTO trading relationship with the EU - especially in the absence of an agreed transition deal - could mean that it All Falls Down (Kanye West) for GBP next year. However, a UK general election in 2018 is not ING's central scenario - meaning that for now, GBP's tail risks remain just that - tail risks.”