Nomura

Brexit & FX Outlook 2020

Will this New Year mean a New Brexit?

  • 2019 was all about parliamentary battles over Brexit, 2020 is looking to be less so with a conservative majority in place.
  • The state of UK data, here and now, is not great, but we think the BoE will introduce policy to fix this.
  • We could see the pound raise to a level of $1.40 or $1.41 by year's end if a hard Brexit is avoided.

"2019 was all about parliamentary battles over Brexit, 2020 looks positive as we move on with a conservative majority making the impacts of Brexit less market moving."

Jordan Rochester - FX Strategist

However if we look at the state of UK data, its not that great , UK growth is below trend and falling quite fast, UK inflation - it's below target and falling further still, and we are now starting to see the historically strong UK labour market having a few cracks such as wage pressures.

UK Data vs Historical Trend

But that's the here and now, markets look to the future . And we are starting to see, on global scale, the worst of the growth data under-performance is behind us. The below target growth has started to see signs of picking up, in both the European and US data, or indeed the new orders of the UK PMI data.

What this means around the pound is that we have risks around the BoE , risks around the the UK budget and risks over Brexit. But if the green shoots in the data pick up and turn into a trend, this should see the pound start to out perform.

For a more in-depth analysis of our 2020 forecast, read our full outlook here.

Contributor

  • Jordan Rochester

    FX Strategist

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