Pound may surge on 2nd referendum
Published on 16.01.2018 13:56

The British pound may soon hit $1.40 as expectations grow that a 2nd referendum will be held on whether Britain will remain in the European Union with the chances of a reversal in decision of the previous referendum a distinct possibility.

Many analysts believe that if a second referendum is announced, the pound could rocket upwards from current levels and investors would be wise to hedge themselves against such moves in the sterling.

Further interest rate hikes which are also expected from the Bank of England will also support the pound and on current fundamentals some say the currency is undervalued at the moment.

“Our base case sees GBP/USD meandering in a 1.30-1.40 range in 2018, with EUR/GBP following EUR/USD higher through 0.95. Considerable bad news is already priced in, and Sterling is already ‘cheap’ on most valuation metrics,” notes Olivier Korber, a strategist from Société Générale in Paris

“A GBP/USD fall to the 1.20 low would require, above all else, a stronger Dollar rather than a weaker Sterling alone. We think the chances of a fall that far are about 5%, whereas we see the probability of GBP/USD appreciating through 1.40 at around 15%,” added Korber.

CPI figures released earlier today from the UK hit the market strongly, coming in at 3 percent which is higher than the Bank of England would like to see and raises the possibility the central bank may raise rates again at their board meeting next month to try and keep inflation under control.

Retail sales figures due out later this week are also expected to come in strongly which will only add to the case for a rate hike.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

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