FXStreet (Delhi) – Research Team at RBC Capital Markets, remains constructive for GBP as a central case, largely on the back of conventional policy expectations, but recognise there are a number of downside risks which may rise up the agenda in 2016.
Key Quotes
“Amongst these risks, most notable are the UK’s unsustainable current account deficit and the EU referendum, promised for end-2017 at the latest. We have argued for some time that the UK’s external deficit is largely a public sector phenomenon and this is still true, but is becoming less so as the household sector slips into deficit. Looked at in terms of its domestic imbalance counterparts, the bulk of the current account deficit is still explained by the budget deficit and so long as the government’s strategy to reduce the deficit remains credible, the deficit should remain fundable.”
“As to the rising risk of UK EU exit, on the face of it, there are reasons to think GBP should carry a rising risk premium as the referendum draws closer. Estimates of the magnitude of the economic shock that would be associated with UK exit vary widely, though most agree the short-term impact would be weaker activity and directionally, it is hard to see this as anything but negative for the currency.”
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