Where’s a fair deal for Sterling?

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This week Michael Metcalfe, head of Global Macro Strategy, highlights how much further sterling might still appreciate if a Brexit deal can be agreed in the next few weeks. He comments, “Sterling has been significantly undervalued since the UK referendum, reflecting a clear and consistent Brexit discount. While measuring currency valuations is less precise than in other asset classes, our purchasing power parity indices from PriceStats* are both straightforward and timely, as they are built in real-time from prices collected online.

 

“Even after an apparent turn around in current negotiations and equally dramatic appreciation in sterling in the past few days, this metric suggests the currency remains seven percent undervalued against the dollar. Should, against all recent expectation, a deal get agreed and then somehow make its way through European parliament, a knee-jerk move to at least fair value, currently 1.36 against the US dollar, seems probable. At least until the transition period hits its first roadblock!”


Where is a fair deal for sterling?


About State Street PriceStats®

 PriceStats is a provider of high-frequency global inflation indices that offer insights into key macroeconomic variables. The indices are generated using software that scans the underlying code on public websites to capture the full array of products sold by online retailers, including food, beverages, electronics, apparel, furniture, household products, prescription drugs, and over-the-counter medicines. The technology monitors price fluctuations on roughly five million items sold by hundreds of online retailers in more than 70 countries. The PriceStats methodology is grounded in the extensive body of research of MIT professors Alberto Cavallo and Roberto Rigobon and their Billion Prices Project at MIT. Cavallo and Rigobon have leveraged this research and their expertise in monetary economics to develop the PriceStats indices.


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