Credit Agricole Research maintains a bearish bias on GBP in the medium-term.
"It feels like a perfect storm has engulfed the GBP with the currency buffeted by an increasing number of headwinds. More recently, expectations of negative BoE rates have been added to the persistent no-trade-deal-Brexit fears and postCovid-19 growth concerns and thus darkened further the already gloomy outlook for the pound. Negative policy rates seemed to be viewed favourably a number of MPC members," CACIB notes.
"Negative rates could fuel sharp portfolio outflows, trigger wild GBP gyrations and FX volatility, reducing further the appeal of UK assets for foreigners and increasing FX hedging costs to the detriment of corporate profits. Negative rates have the potential to deal a significant blow to the GBP and send it towards 1.20 or lower vs the USD and toward 0.92 or higher vs the EUR," CACIB adds.