FxWirePro: How far sterling may correct against yen

The market is showing signs of exhaustion with the Brexit fear. There has been so much scaremongering that many in the market, especially on the retail side thought there would be an immediate Armageddon post-referendum if the Britons vote in favor of going out of the European Union. That happened and now traders are realizing that there isn’t much to do immediately since there are too many uncertainties and so many possible outcomes. At this point is difficult to price in the fallouts. Clarity will come only over the longer horizon.

Instead, it is easy to forecast that in the aftermath of the referendum vote, central banks will be in no hurry, especially Fed to go for rate hikes. Moreover, some like Bank of England (BoE) may even go for further easing. This has triggered a risk-on atmosphere, especially since the contagion effect seems to be low.

The sterling seems to be benefiting from the current risk-on environment and likely to for further correction.

We calculate that the sterling may correct to 1.39 against the dollar and to 144 in the case of the yen. The pound is currently trading at 1.347 against the dollar. The yen is trading at 138.5 per pound.