What drives GBP after the Brexit vote - Nomura

Research Team at Nomura, suggests that as the initial Brexit vote volatility fades, the rate spread has been an important driver again recently, while GBP’s reaction to UK political risks and risk sentiment has declined.

Key Quotes

“UK data will be a key driver in the near future, and further GBP weakness is likely as UK data show clearer signs of weakness. However, this suggests the BoE will face the lower bound quickly, and this could diminish the impact of UK factors on GBP, as we have seen for EUR reactions. After the range-trading at 1.30-35, we still expect GBP/USD to breach 1.30 again. Nonetheless, we think mid-term downside room for GBP/USD is more dependent on US data and monetary policy, unless the BoE’s monetary policy strategy changes.”