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Pound sterling to become emerging market currency

Pound sterling to become emerging market currency

Some market experts note that the British pound now closely resembles the currency of developing countries. After the UK has finally left the European Union, the pound sterling began to behave unpredictably as a currency of emerging markets.

Currently, the British currency is caught between two millstones: on the one hand, demand for the currency is extremely low among investors, and on the other hand, demand from the Bank of England is rather buoyant. As a result, the pound sterling is highly volatile and a sharp oscillation is usually a future of emerging market currencies. This assumption was made by economists at Bank of America. "The pound increasingly resembles the more liquid emerging market currencies rather than a core G10 currency," currency analyst Kamal Shah said. "We believe sterling is in the process of evolving into a currency that resembles the underlying reality of the British economy: small and shrinking with a growing dual deficit problem similar to more liquid [emerging market] currencies," he added. Besides, the UK public debt may turn into double deficit: a situation when there is a deficit in the state budget and in the current account of the balance of payments as well as in the cost of imports, and in payments to foreign investors. Experts are not sure how the situation is going to unfold in the UK. Usually, countries whose currency is not included in a list of the main reserve currencies face a drop in the inflow of foreign currency to the local market. 

According to analysts at Bank of America, it is time to open short deals on the pound sterling against the euro, the Swiss franc, and the yen.

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