GBP: Medium term risks remain very significant at economic level - Natixis

According to Nordine Naam, Research Analyst at Natixis, UK has little room for maneuver and is in a weak position to negotiate.

Key Quotes

“When Article 50 will be activated, it could take almost 18 months only to negotiate the terms of exit from the E.U. Negotiations on the future relationship with U.E will begin only after. Furthermore, if no agreement is reached rapidly with the European Union, the risk is that the customs tariffs defined by WTO would apply. Finally, uncertainties remain over European passporting, which could weigh on the financial sector.”

“In sum, it is conceivable that sterling will extend its technical rebound in the very near term, but over the medium term risks remain very significant at economic level. Given the uncertainties at economic level, we therefore remain bearish on sterling for the medium term. The GBP/USD could eventually test 1.25, which we would see as a sell level, that is unless the US dollar extends its correction, which is an unlikely scenario over the medium term, as the solidity of US economic growth will fuel inflation, in turn the tightening of the Federal Reserve’s monetary policy.”