GBP: Any bounce will be relatively short-lived - SocGen

Kit Juckes, Research Analyst at Societe Generale, notes that the Theresa May has established herself very firmly as the front-runner in the contest to lead the Conservative party.

Key Quotes

“Although she was a ‘Quiet Remainer’ she intends to respect the outcome of the referendum and begin the process of taking the UK out of the EU, albeit without rushing to trigger Article 50. This offers no respite from political and economic uncertainty in the months ahead and while sterling is currently recovering from the overnight slide, any bounce will be relatively short-lived.

A move towards GBP/USD 1.20-1.25 over the medium term seems appropriate, anything more still looks like an overshoot. Comparisons with 1985 are inevitably but not that relevant. GBP/USD was last below 1.30 in June 85, but it was on its way back up after the Volcker-Reagan induced dollar overshoot. GBP/USD recovered from 1.05 in February to reach 2 by 1991 as BOE rates rose sharply relative to Fed Funds.”