GBP Can Fall More; Impact of Drop on C/A Gap May Be Small: Citi
(Bloomberg) -- The U.K.’s need for foreign capital falls very little with a weaker currency, and the C/A deficit could even widen on a lower pound if yields on primary income didn’t fall, Citigroup analyst Josh O’Byrne writes.
- The drag can’t be solved without a weaker economy, which restrains imports and direct investment income outflows
- GBP is now trading more cheaply vs major currencies on Citigroup’s proprietary fair value model WERM than it ever has; on PPP there’s still 5%-10% to reach the “lows”
- Not certain the lows are in; target GBP/USD at 1.15 to 1.20 into early 2017
- NOTE: U.K. is on course to borrow billions of pounds more than planned this year, leaving Chancellor Philip Hammond little room for generosity as he prepares a budget to help the economy cope with Brexit
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People Josh O'Byrne (Citigroup Inc)
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