A lot more downside potential for pound and UK assets: Jane Foley, Rabobank

In a chat with Tanvir Gill of ET Now, Jane Foley, Senior Currency Strategist, Rabobank, says European officials have a lot of work to do in order to try and keep that system coherent and if they do not, then over the next few years the UK referendum may not be the only one. Edited excerpts

Tanvir Gill: What is the state of the pound? Does it have more downside potential?

Jane Foley: We do not know who is going to be prime minister in UK after October. Main opposition party in complete disarray. So there is at this point no leadership. No one knows when Article 50 of the Lisbon Treaty will be in vote. Only at that point do we begin the break way from the EU. So too much uncertainty right now and I think for that point of view, there is a lot more downside potential for the pound and UK assets.

Tanvir Gill: There is downside potential but right now for the immediate term, do you believe that 130 would act as a strong base against the dollar for the GBP?

Jane Foley: I think there is a psychological reason. So 130 certainly will be a big level. But I do think in the next few weeks there is the potential to go below that and now, of course, what we do not know in this situation just yet is what the economic impact is going to be. We know that we have got fairly chaotic political situation in the UK. We know that there is going to be political fool act in Europe too. But we do not really know how the economics is bearing out. What we are likely to see in the next few weeks is more data with respect to confidence, investor confidence and, of course, consumer confidence too. Now if those numbers are very weak and there is a big risk that they could be, the risks of recession are going to be highlighted even further and at that point, sterling will look very vulnerable.

Tanvir Gill: And what is your outlook then on the euro because there is some susceptibility there as well? Now, there is perhaps more risk than before about the disintegration of the European Union potentially happening over a course of time and not immediately. Then, of course, what would that mean for the common currency in Europe?

Jane Foley: I think we look at some of the opinion polls over the last few weeks in Europe and we see the levels of disharmony with the EU are even higher in countries such as France and perhaps Italy than it was in the UK. So the European officials know that they have a battle on their hands to try and keep this system together. Now, I also do think there are some voter disharmony which could be pared back when they begin to see the situation in the UK. So yes there is a lot of protest votes out there in Europe but I think the shock of what is happening in the UK could perhaps tone it down but even so European officials have a lot of work to do in order to try and keep that system coherent and if they do not, then I do think over the next few years the UK referendum may not be the only one.