EUR/GBP a Conviction Buy Says Nomura
- Written by: Gary Howes
Image © Adobe Images
Stategists at Nomura say pound sterling is highly likely to come under further pressure against the euro.
"We have raised the conviction on our long EUR/GBP trade to 5/5," says Dominic Bunning, FX strategist at Nomura.
The call comes on a day when the Bank of England delivers a 'dovish' interest rate decision and UK political risks rear their head again, with Prime Minister Keir Starmer's leadership being questioned over the Epstein-Mandelson scandal.
"UK politics becomes more challenging for GBP with significant downside if Starmer goes but limited upside if he stays," says Bunning. "A new PM would be likely to appoint a new Chancellor, creating the risk of negative fiscal sentiment returning."
We cover the issue in more detail here.
The pound's politically-inspired losses accelerated after the Bank of England held interest rates with an unexpectedly tight 5-4 vote.
The implication was clear: the Bank will cut rates in March, which triggered a selloff in the pound.
"Today’s BoE meeting implies further downside risks to Bank Rate in our view," says Bunning. "We continue to think there is a greater risk of rates moving closer to the middle of the BoE’s estimated neutral range (2-4%), which would help narrow the front-end rate spread versus EUR towards 100bp from 140bp currently."
Nomura targets a move by EUR/GBP to 0.8950 (GBP/EUR at 1.1173).
