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Dec 23 - 10:55 AM

GBP/USD: Still Cheap In Real Terms; Mid-1.40s On A Deal, Mid-1.20s If There Isn't - SocGen

By eFXdata  —  Dec 23 - 09:30 AM

Societe Generale Research discusses its outlook for GBP on the prospect of a Brexit deal or no-deal between the UK and the EU.

"In real terms, sterling trades about 12% below its 27-year average, and 14% below its average level since the collapse of Bretton Woods. It's 8% above the all-time low. A persistent current account deficit and a collapse in the UK's pre-GFC relative rate advantage don't suggest a poor trade deal with the EU would get sterling out of its post-GFC range, but still struggle with the idea that it can trend lower and lower, even on no deal. If EUR/GBP breaks parity, it will only be sustainable if the ‘real' EUR/GBP rate is anchored by higher UK inflation," SocGen notes. 

"If taking all this to heart, we should expect GBP/USD to trade to the mid-1.40s next year IF there's a deal, and bounce after an initial fall to the mid 1.20s, if there isn't. We should expect EUR/USD to move slowly higher and USD/JPY to get through 100 eventually, even if the Japanese government isn't happy about that.

Source:
Société Générale Research/Market Commentary

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