GBP/USD could continue to decline to 1.25 according to Morgan Stanley.

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Morgan Stanley provided its bearish outlook on GBP/USD yesterday. “We think GBPUSD could continue its decline to 1.25 after the vote to leave. The UK needs foreign investment inflows to fund its 7% of GDP current account deficit, but the vote to leave could cause a decline in cross-border flows. For foreign investors to be attracted to the UK, either GBP has to depreciate to make UK assets cheaper, or UK assets need to offer a higher yield. Given that the UK sovereign yield curve lies below the US yield curve for all maturities beyond 1y, it seems more likely that it will be the FX depreciation doing the work. Hence, we think the risk/ reward of going short GBP against JPY, EUR and USD at current levels is attractive.” written in the report.

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