Deutsche Bank Really Doesn’t Like Pound on Lockdown, Brexit Woes

(Bloomberg) -- The pound is due to be hit by a combination of Brexit, negative rates and the U.K. government’s management of coronavirus measures, according to Deutsche Bank AG.

“The lockdown has not been managed well and economic reopening is lagging,” strategists for the bank including George Saravelos wrote in a note introduced with the words “We really don’t like GBP”. They recommend selling the pound on a trade-weighted basis.

The consumption-driven nature of the country’s economy makes it particularly vulnerable to the effects of the epidemic, the strategists said. Its large commercial real-estate market also poses a risk to the country’s financial stability.

Money markets have priced in expectations of negative interest rates in the U.K. for May 2021 after a change in tone among policy makers, who recently stopped short of ruling them out. Their use would hit sterling hard, because of the U.K.’s current account deficit, the strategists wrote.

There’s also substantial risk stemming from Brexit. Failing to negotiate a trade deal with the European Union by the end of the year would pile even more pressure on the pound. According to David Bloom, global head of FX strategy at HSBC Holdings Plc, the bloc’s shared debt recovery plan adds to the risk.

“There’s no way the U.K. wants to go and start paying into a fund for the other people to save them in the euros,” he said in a Bloomberg TV interview. “So it looks like we’re leaving with or without a deal by the end of the year and this has just exaggerated that. So that’s put a bit of downside on sterling.”

©2020 Bloomberg L.P.

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