Nordea: EUR/GBP to Fall, GBP/USD to Rise Further

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Exchange rate forecasts Nordea

Aurelija Augulyte, Senior FX Strategist Nordea Markets has analysed pound sterling and believes we should expect the current round of strengthening to extend:

So, has the GBP weakened enough?

It is notable that the GBP speculative positioning is still record net short.

But we may be getting to the beginning of the end of increasing the net shorts.

After all, being exposed to the binary event is not to everyone’s liking.

Looking at the options market, the GBP also stands out as extreme, for example the 1Y GBP/USD 25D risk reversal stands close to -4, a historical low and out of sync with the rest of the market.

Too low to hold.

The valuation is GBP supportive ahead of the 23 June Brexit referendum.

The short-term fair value models point to levels of EUR/GBP below 0.77.

Even our long-term PPP model suggests that EUR/GBP is undervalued (fair value at around 0.72).

Thus in the short term the GBP should strengthen in that direction.

We stick to our call - GBP/USD is on the way to 1.46-1.48 in the coming few months.