Sterling weakened into the close on Friday.
At this stage though, it would take a new low to convince me that that’s the end of the recovery. As I said in a previous blog, the odds do favour more sterling weakness, but perhaps it’s too soon for that. You have to factor in all the profit taking from traders who have been short gbp. Once they’ve booked their profits the way should be clear for more sterling weakness. Indeed Credit Suisse recently suggested that fair value after Brexit might be in the low 1.20s, when you consider that the threat of monetary stimulus from the Bank of England is still in the air, it’s hard to dispute their valuation. Furthermore, Andy Haldane, the Bank of England’s chief economist has suggested that he will support significant monetary stimulus in August. If that’s the case, then any pound sterling bounce from here is going to be of the limited variety. The new normal may well be a 1.20 handle for GBP/USD, but at the moment I’m still trying to process the implications of the recent discussions between Prime Minister May and Nicola Sturgeon the Scottish First Minister regarding Britain’s exit from the EU. It might be nothing, it might be something, watch this space.
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