How far could the British pound fall further

Ostrum AM strategist: British pound could fall low - euro appreciation unproblematic

Prime Minister Boris Johnson's statements that his internal market law deliberately disregarded the provisions of the Brexit Treaty that had already been agreed led to a price decline of more than three percent. The British government's confrontation course is unlikely to be good for the pound. "It cannot be ruled out that the British currency will fall back to the lows of 2019 in the coming weeks," says Axel Botte, market strategist at Ostrum Asset Management in his current market report. For a long time, the British pound had a reputation as a stable reserve currency. “Since the Brexit vote, however, a high level of volatility has determined what is happening,” said Botte. This is an additional burden for the British economy.

Botte, however, is not worried about the current appreciation of the euro against the dollar. "Taking into account the conventional measures of the effective exchange rate, the euro seems to be in line with the long-term average development," said Botte. The current valuations should therefore not have a disproportionately large impact on the economic equilibrium in the euro area. Regarding the concerns of ECB economist Philipe Lane regarding inflation, Botte said: “Exchange rate fluctuations have a temporary effect on import prices. The inflation target, however, is defined in the medium term. "

Axel Botte, market strategist at the French asset manager Ostrum Asset Management

Interested readers will find the complete weekly report in the English original and the associated datahere as a PDF document

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