GBP/USD: Current strength unlikely to last – Commerzbank

Liz Truss is succeeding Boris Johnson as the new Prime Minister of Great Britain. What really matters for the GBP exchange rates is what happens next. Economists at Commerzbank stick to their pessimistic outlook.

There are still sufficient stumbling blocks for sterling

“It remains questionable though whether a more rapid rise in interest rates really would be positive for sterling even if it was to fight inflation as they would be likely to deepen a presumably long recession even further so that this would lead to doubts whether the BoE would be able to stick to its restrictive monetary policy for long.”

“There is speculation that Truss will trigger article 16 of the Northern Ireland Protocol thus negating part of the agreement with the EU. The EU might react with the imposition of tariffs on British goods which would severely damage UK exports, as the EU remains the most important trade partner. However, at least short-term this is likely to be the smallest risk for the GBP exchange rates. It can be assumed that a conflict of this nature would not escalate too quickly but that initially there would be extended negotiations.” 

“Sterling strength seen this morning is unlikely to last.”