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The ABC of further GBP weakness – HSBC

FXStreet (Barcelona) - David Bloom, Global Head of FX Strategy at HSBC attributes three elements for the weakness in GBP.

Key Quotes

“Cyclical: The Bank of England is likely to raise rates later than the market currently expects”

“Political: The May 2015 general election warrants a higher risk premium be priced into GBP”

“Structural: The UK's twin deficit problem is among the worst in the FX world and could become a greater focus should capital inflows slow during 2015.”

“The currency remains exposed on these three fronts, but the market appears focussed on only one - the retreat in UK rate hike expectations - and, even here, the dovish adjustment is not yet sufficient.”

“But as we enter 2015, the FX market will also be more active in pricing the tail risks from heightened political risk around May's general election, and the UK's economic imbalances on the trade and fiscal fronts.”

“This potent cocktail of cyclical, political and structural drivers should ensure GBP remains on wobbly legs beyond the festive season, with further weakness likely to ensure the consensus is once again too upbeat.”

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