5 Dec 2014
Sterling driven by Direct Foreign Investment flows - BAML
FXStreet (Guatemala) - Kamal Sharma for Bank of America Merrill Lynch explained that the persistent widening of the UK current account deficit has been one of the more curious by-products of the post global financial crisis (GFC) landscape in the UK.
Key Quotes:
“Though much discussed, the widening deficit has had a limited impact on sterling up to now. This may in part be due to the markets focusing on the cyclical factors that affect GBP such as the prospect for Bank of England monetary policy against the backdrop of rising growth rather than on structural medium-term factors."
"While a current account deficit in excess of 5% of GDP is ultimately unsustainable for a currency, part of the reason for the resilience of the pound to a widening deficit is that the UK has been able to attract longer-term capital flows and FDI in particular. Further, our valuation models do not suggest that the external trade deficit is being driven by a significant misalignment of GBP which we see as being fairly valued."
Key Quotes:
“Though much discussed, the widening deficit has had a limited impact on sterling up to now. This may in part be due to the markets focusing on the cyclical factors that affect GBP such as the prospect for Bank of England monetary policy against the backdrop of rising growth rather than on structural medium-term factors."
"While a current account deficit in excess of 5% of GDP is ultimately unsustainable for a currency, part of the reason for the resilience of the pound to a widening deficit is that the UK has been able to attract longer-term capital flows and FDI in particular. Further, our valuation models do not suggest that the external trade deficit is being driven by a significant misalignment of GBP which we see as being fairly valued."