Sterling is expected to decline once more against the euro and dollar after Britain has officially begun its divorce process from the European Union, according to sources.
The pound declined by about 17 percent against the dollar since the June 23 vote to leave the European Union, which changed hands nearly at $1.24 during the course of Friday’s session. Meanwhile, around 60 foreign exchange strategists estimated that it will decline further this week.
The currency is expected to be worth $1.22 in a month’s time at the end of March, after Prime Minister Theresa May aimed at triggering Article 50, implying for the two-year countdown to Brexit to start, which will send the cable to $1.21.
"In the wake of the very strong UK data the fact that sterling has lagged other currencies slightly against the dollar suggests politics is dominating," said Colin Asher at Mizuho Securities.
"I would expect that to continue probably for most of the year. Sterling will be difficult to predict given the very substantial negative positioning," added Asher.
However, it has remained unclear as to what direction may the negotiations will lead, but several analysts are expecting May will take a hard line on immigration at the likelihood of the expenses of Britain’s access to the single market, obstructing trade and further weighing down sterling.
Medians in the polls are expecting the cable to hit $1.20 in the next six months.
Deutsche Bank Says Sterling is Undervalued
Analysts at Deutsche Bank concluded that the Pound Sterling might be among the world’s most undervalued currencies as we head into 2017.
Among 31 currencies evaluated by the investment bank, the sterling is considered as the third cheapest based on a DBeer valuation.
Subsequently, the DBeer model is Deutsche Bank’s own version of the BEER model (Behavioural Equilibrium Exchange Rate), which is commonly used for measuring valuations amongst economists.
The model basically attempts to measure whether a currency is over- or under-valued relative to the economy.
Current Stance of GBP/USD Pair
The chart below illustrates GBP/USD price movement amid expectations that the pound sterling will slightly decline.
Given a bearish tone of the pair, market participants still indulge in selling the currencies as the currency remained under pressure and is affecting the market.
Further, the pair is currently showing signs of consolidating phase, and traded in a between resistance 1.24175 and support 1.23341 in a heavy trading volume.
As the illustrative chart above shows a bearish tone on the pair, market participant are recommended to still wait on the sidelines as there aren’t any supporting candle present as of writing.
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