Pound falls again but it may be 'nowhere close to bottom'

Markets are extremely volatile after Brexit and we are nowhere close to the bottom, says Alvin T Tan, Currency Strategist at Societe Generale.

In an interview with CNBC-TV18, he said that the British pound is expected to lose further ground in the next 12 months and reach levels of 1.25 or even 1.20 against the US dollar.

In the same interview Ipek Ozkardeskaya, Senior Market Analyst at London Capital Group said that Asian markets may get over the Brexit scenario but a very negative sentiment prevails in Europe.

She further said that the political uncertainties within UK are causing further sell-off in the British market.Below is the transcript of the interview with CNBC-TV18's Surabhi Upadhyay. Q: What is your reading of what is going on with the currency with this further 4 percent slide on the pound that is coming in and the fact that money is really gushing into safe haven assets like the 10-year yields, what is your sense of how the money markets are dealing with it and whether we are anywhere close to the bottom? Tan: I don't think we are anywhere close to the bottom. Markets are extremely volatile right now, sterling falling almost 4 percent against the dollar today. We do expect volatility to die down in time but sterling is expected to lose further ground in the next 12 months in our view. We in fact expect sterling against the dollar to fall 1.25 by year end and to 1.20 in the next 12 months. We don't really see a bottom at this point though the volatility should die down over time. Q: There is a lot of pressure, it is not as bad as what is playing out on some of the currencies for instance we were just discussing the British pound but what do you think lies ahead for equities on both sides of the Atlantic? Ozkardeskaya: We can see that Asia could get over the Brexit decision because we are seeing the stocks going higher but that has not been the case in Europe. We have a very negative sentiment here in London today, the FTSE100 stocks have already lost 2.50 percent right now, DAX and CAC have lost about 3 percent, so the sentiment is really not comfortable here in Europe and even the markets on the other side of the Atlantic opened in the red. So, what we can say is this has been a shock. As I was mentioning before the Brexit vote the downside risks were not correctly priced in. This means that the potential on the downside was large and we cannot say that we have hit the bottom yet. Now this is a clear panic situation. However I believe that the political uncertainties within the UK is now what is causing the further selloff in the UK market. Q: What the thought is right now in the interbank markets. We have seen bank stocks get pummelled very badly, trading getting suspended on some of them, what is the biggest fear right now because a lot of the wisemen and the analysts had said that this has got nothing to do with the credit markets. This is more a political decision that has happened, it is going to impact perhaps trade ties but it shouldn't really do anything meaningfully negative to credit markets and financial markets, what is your reading now? Tan: It is important to note that Brexit is unlikely to be a great systemic risk similar to what we saw for example with the bankruptcy of Lehman Brothers in 2008. We don't really see a result of that magnitude. We do see quite a few European banks particularly British banks being badly hit following the Brexit. There are concerns certainly about access of UK financial services to the European market in the Brexit situation. So, some of those banking stocks, financial institutions are being hit on the back of that. However we don't really see a systemic risks coming from Brexit for sure. In terms of global risk events, it is worth noting that apart from sterling if you look at the situation in the broader FX markets, commodity currencies, emerging market currencies have continued to selloff today, perhaps not so much in Asia but certainly when London trading began we have seen emerging market and commodity currencies being hit too. So, I think there is a fear that global growth was already not doing particularly well and with this Brexit shock it will damage it further. So, it is a bit more than just a UK situation at present which is what is driving the selloff in global markets currently. Q: Do you see any further tightness in the interbank market? Do you see any further tightness in credit markets at all in the coming days? Tan: I would imagine that would continue particularly with risk aversion moving higher that will indeed be the case.