GBP/USD: Why Levels Below 1.30 Likely Hard To Sustain? A Historical Take – SocGen

GBP/USD crashed on Brexit concerns and fell deep below 1.30. Is it sustainable?

Here is their view, courtesy of eFXdata:

Societe Generale Cross Asset Strategy Research discusses GBP/USD valuation from a historical perspective and what this might imply for prices over the medium to long term.

“GBP/USD was bumped around by the Napoleonic, US Civil, and first world wars, without changing its central value. It fell persistently from 1939 onwards in steps before the end of Bretton Woods, and erratically from then until 1985, since when it has traded in a range.

Without a significant inflation differential, and with a PPP fair value at 1.40, levels below 1.30 are going to be hard to sustain but even so, the level of yields – now well below the averages of the 18th and 19th centuries and absurdly low relative to nominal GDP growth, act as anchors, and mean that GBP/USD will rise much more slowly against the dollar than the euro does when the latter finally finds its mojo,” SocGen argues.

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