GBP/USD to fall further over the next few months

Brexit and politics are affecting the pound again. The external challenge, alongside a difficult growth path and limited fiscal flexibility, suggests that the GBP should fall from here regardless, in the view of economists at HSBC.

Key quotes

“The window to sign a free-trade agreement between the UK and EU is closing fast. And there is an increasingly fraught domestic political situation. The Internal Market Bill – which the government itself has admitted breaks international law (albeit in a ‘limited and specific’ way) via reneging on the previously signed Withdrawal Agreement (source: BBC, 8 September 2020) – has created headlines which have swung the GBP back and forth. However, the real question for the GBP is whether these events increase or decrease the possibility of a free-trade agreement with the EU. The mood music from the EU suggests things are getting more difficult, not less.”

“Anything that makes a free-trade agreement less likely should weigh on the GBP. If it becomes evident that ‘no deal’ is the most likely outcome, the fall in GBP would not be ‘limited and specific’. We believe GBP/USD should trade materially lower in this scenario. But even if a deal can be reached, it is worth remembering that the barriers to UK-EU trade and investment will still be greater in the future than they are now.”

“The external challenge, alongside the difficult growth path and limited fiscal flexibility, suggests that GBP should fall from here regardless. We expect GBP/USD to decline further this year.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.