GBP/USD: Investors need more convincing about the attractiveness of UK fundamentals – Rabobank

The uncertainty about what additional impact Brexit is having on supply chains, wages and prices appears to have taken an additional toll on investor sentiment. Economists at Rabobank see downside risks to their GBP/USD three-month forecast of 1.36.

Immigration is not the only Brexit related concern

“Johnson expects the post Brexit transition will result in a ‘high-wage, high-skill, high-productivity economy’. The heavy recent tone of the pound, however, suggests that investors need more convincing about the attractiveness of UK fundamentals.”

“There is evidence that wages for some UK workers are rising. However, currently, for the majority, there is little expectation that wage growth will keep pace with inflation meaning that real incomes and thus demand are likely to shrink.”

“The increase in GBP implied volatility reflects a jump in uncertainty regarding the outlook for the pound. In turn, this is re-focusing attention on politics and on how the country is being managed.”

“The strength of the USD suggests that GBP is in danger of being pushed back further. We see downside risk to our current three-month cable forecast of 1.36.”