GBP to continue to weaken against USD, says Commerzbank

The key factor exerting pressure on GBP exchange rates is the continued uncertainty regarding the relationship between the U.K. and the EU in the future. Especially, access to the single market plays a significant role for the GBP outlook. If trade in goods and services continues to be greatly unchanged after Brexit, sterling is expected to rebound markedly as fundamental economic framework conditions would continue to be greatly unchanged, stated Commerzbank in a research report.

But the more access to the single market was going to be restricted the higher the downside risks for the exchange rate, added Commerzbank. If the nation loses access to the single market, risks for the real economy rises, which might in turn raise uncertainty amongst investors.

With the economy depending on capital imports to fund its huge current account deficit, the nation might be in for a challenging current-account correction if capital inflows stop. These downside risks for pound have increased considerably since May’s Brexit speech. Accordingly, sterling has reached new lows against the USD and euro.

Speculation regarding the Brexit continues to be the main driver for GBP exchange rates. This signifies that the currency outlook continues to be quite uncertain. Generally, the expectation that in the end an amicable agreement between the EU and Great Britain would be in interest of both sides and that as a result GBP would rebound; however, such an outcome is expected to stay uncertain for some time.

“We expect GBP to continue depreciating against the USD in particular, as the greenback will be supported by a continuation of the Fed rate hike cycle”, stated Commerzbank.