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    GBP: Is the worst still to come? - TDS Sandeep Kanihama

    Research Team at TDS, suggests that as the implications of the UK’s Brexit vote begin to sink in, they see protracted downside risks for sterling.Key Quotes“We expect GBPUSD to trade down to 1.20 by the end of this year. The risks to our forecast are currently skewed to a further—and faster—decline.Investors should use the latest bounce in cable off the lows around 1.28 to initiate—or add to—short positions. We expect cable’s next leg lower to carry spot toward our end-Q3 target of 1.25 before another period of consolidation is seen.Investors who prefer GBP shorts against the JPY may favour low-delta 2M GBPJPY put spreads as the current environment of risk aversion also suggests the yen may rally amid safe haven flows.While the initial shock phase looks complete, sterling faces substantial downward pressure as global investors allocate capital away from UK assets. Political uncertainty is likely to amplify these effects as the UK faces stability concerns on multiple fronts.The longer-term macro impacts of the EU withdrawal will only be felt with a delay. These are likely to maintain momentum in the GBP’s bearish long-term fundamentals.Our expectations for upcoming BoE easing are only partially priced, but the UK’s unfortunate Balance of Payments backdrop may also come to the fore as a driver for further depreciation. The BoP may have its silver linings, but these are only likely to come into play from weaker valuation levels.”

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