GBP/USD could correct o 1.18 in coming months – Natixis

Natixis weekly forex note on G10 trends says Brexit uncertainty is likely to overshadow solid UK economic growth and that could keep the British Pound under pressure.

Key points

Any rebound 1-month implied volatility for the EUR/GBP has continued to rise, reaching 10.50%, after the House of Commons passed the bill authorizing the government to trigger Article 50 of the Lisbon Treaty. The bill will now go before the House of Lords in coming weeks.

Although British GDP growth remains solid as yet, uncertainties over the upcoming negotiations with the European Union remain significant, especially given the surge in euroscepticism, timed when there will be a number of key elections.

For these reasons, we are cautious as regards the growth outlook for the UK over the medium term, with the risk that stagflation will take hold. Next week, watch out for the consumer price index (expected to show a 1.9% increase in January) and the employment data.

We remain cautious on sterling, as we see the GBP/USD correcting towards 1.18 in coming months, while we expect the EUR/GBP to fluctuate between 0.848 and 0.86 in the very near term.