The British pound is under further pressure in today’s trading session following on from last week after UK GDP fell by 0.2% in the 2nd quarter of this year which marks the first quarterly contraction since 2012 and greatly increases the chances of a rate cut from the Bank of England.
The GDP figure was worse than expected, with most analysts predicting a figure of 0 percent and the chances of a recession have now substantially grown.
This dilemma is on top of the Brexit debacle going on at the moment in which a no deal now seems like the most likely outcome This scenario some say threatens to push the pound on parity with the US dollar.
“The pound is at a much lower level now, but I still think a no-deal exit would lead to significant volatility and we could be testing parity on a really bad outcome,” said Harrison, who manages more than $10 billion in assets at BlackRock.
“We will see this game of chicken continue through August and that’s likely negative for sterling,” he added.
The pound is now hovering around $1.20 and should be much lower considering the chances that the UK will leave the EU without an agreement so the closer we get to this date which is the end of October the more the market will start to price in this result.
“Option prices and sterling’s trade-weighted suggest the market is still not adequately pricing in the risk of a no-deal exit, according to Allianz Global Investors portfolio manager Mike Riddell,
“My core view is there will be some kind of extension that is just about the most likely outcome, but I am far less confident in that than I was at the beginning of the year,” said Riddell. “I thought there was just a 5 percent -10 percent chance of a no-deal Brexit by the end of March whereas now I think it is close to 50-50. Markets should be more worried.” he added.
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