GBP: Near term prospects suggest further weakness for Sterling – CitiBank

Analysts at Citibank see the GBP/USD pair trading around 1.17 in a 1-3 month period and forecast 1.25 for 6-12M. 

Key Quotes:

“The new PM increase the odd of hard Brexit. Moreover, the UK economic data remains weak. UK’s GDP contracted in 2Q. Additionally, a general election leaves open the risk of a Corbyn led Labour government. Ultimately, near term prospects suggest further weakness for GBP. But fiscal loosening in the event of nodeal could help offset negative economic effects and support GBP.”

“The risk of a “No Deal” has not been completely eliminated – a strong (and pure Brexiteer) Conservative victory in the UK elections would bring back the prospect of a “No Deal” as the base case whereas an opposition Labor Party victory, while eliminating hard Brexit as an alternative, would bring Labor’s socialist economic agenda for the UK to the fore. Neither of these are particularly good choices for sterling.”

“GBP/USD post a bullish outside week at the trend low if it closes above 1.2310. Some initial resistance is met around 1.2441 with support at 1.1959.”