Sterling Remains in the Forefront of Bank Analysts’ Research as it Takes a Volatile Turn Lower on Prime Minister May’s ‘No Going Back’ Rhetoric
The Pound has taken centre stage after its latest rout Due to Brexit fears, we Survey Forecasts, Recommendations and Opinions From Citi, Nomura and SocGen.
The spool of notes coming out of the bank research departments has steadily grown more focused on the Pound over the last 24 hours, as the currency has weakened severely, breaking below its base in many pairs and already plumbing new depths.
Yesterday’s research flow included a canny recommendation from Citibank to short GBP/JPY, no doubt to capitalise on the contrast between ‘Hard Brexit’ risk pushing the Pound lower and the same risk supplying safe haven flows to a rising Yen.
Citi recommended selling GBP/JPY at 130.55, with a target at 127.10 and a stop-loss at 132.60.
Nomura were not surprised at the direction the Pound took at the start of the week but at suddenness and speed with which the exchange rate fell, admitting the break below the 1.2865 was “unexpected”.
Their forecast of the pair moving down to an eventual target at 1.2700 was dependent on it breaking below the 1.2795 level, which it has already done.
Societe Generale’s Juckes was equally surprised, saying, “Confirmation that the UK Government plans to trigger article 50 by the end of Q1 2017 hit sterling harder than I expected yesterday,” he sees the pair eventually falling to 1.23 on rate differentials.
With the Fed likely to hike by the end of the year and the Bank of England to possibly cut regardless of the strong data coming in, Juckes Rate differential call, seems quite credible.
Not all analysts are bearish the pound: Nomura. for example, suggest holding onto Sterling longs, in what they dub the “Big If “trade.
Their reasoning is that the pound is susceptible to wider risk aversion and if there is a major crisis event, either in the US from a political upset or in
Europe from a banking crisis, that will accelerate a decline in GBP.
Nevertheless, they see a higher probability of such a risk not materializing and therefore Sterling providing a buying opportunity at undervalued current levels.
“Assuming a widespread market tail risk event doesn’t materialize (also a big IF), given these low levels the value trade remains to hold Long GBP in the medium term”.