Trader: There’s No Silver Lining To The Cloud Over Sterling

Via Bloomberg macro strategist Mark Cudmore,

The UK Is Staring Into The Abyss Of A Currency Crisis

The pound is slumping and yet its fundamental outlook gets even gloomier by the day.

When any asset moves in an almost-straight line for more than two months, there’s a natural instinct to wonder when the pullback is due. When it comes to sterling, there’s little indication the ongoing decline is stretched. Any relief rallies will likely be weak and brief.

The Bloomberg Pound Index has fallen on 38 of the past 48 trading days. Currency weakness is usually a good release valve for economic pressure, but all the signs are that it needs to fall much further.

The collapse in PMIs raises the specter the country is heading for recession.

Worryingly, consensus forecasts for the current-account deficit are widening rapidly, now at 4.2% for 2019, from a 3.7% projection only one month ago and a 3.25% prediction six months ago. This is reminiscent of an EM currency.

It’s not just the economics that are reminiscent of an emerging market, but the politics too. The man who polls indicate is almost certain be to the next leader of the country, Boris Johnson, is openly considering suspending Parliament and the democratic process even before he takes the reins. Many market participants are even more worried by the economic consequences of the opposition party taking power at some point.

Pound traders all must fear the seemingly inevitable position squeeze. But the point is that there’s really no silver lining to the cloud over sterling.

The U.K. is a leveraged economy with a large and growing current-account deficit, deeply negative real yields and poor growth.

On a trade-weighted basis, sterling looks set for record lows in the months ahead and, despite the substantial weakness already seen, the vulnerable side for a sudden gapping move is definitely down. Much further down.

via ZeroHedge News Tyler Durden

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