The pound fell on the first big victory of populism: Brexit. It wobbled on the second event: Trump’s Triumph. And what’s next? The team at Bank of America Merrill Lynch sees gains for the pound against the euro:
Here is their view, courtesy of eFXnews:
Brexit and the election of Donald Trump could help bolster nationalistic and antiglobalization parties elsewhere by lending legitimacy to their causes. With major elections coming up in France, Holland and Germany next year and the possibility of early elections in Italy, investors will be on tenterhooks, as anti-globalization movements could further undermine public support for the European project at a time that the Eurozone is still recovering from the peripheral crisis. It is not our central scenario that right wing parties will take power in any of these countries next year.
However, after the surprise victories of the Brexit camp and Trump, investors are likely to demand greater risk premium ahead of these votes.
We think this could lead to further reversal of the rally in EUR/GBP this year and would recommend selling the cross at the current level.
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