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GBP long positions preferred as “BoE’s Super Thursday” approaches - Nomura

FXStreet (Delhi) – Research Team at Nomura, have been tactically neutral on GBP recently, while they continue to expect GBP to outperform.

Key Quotes

“GBP has restarted its outperformance recently, as chances of a near-term ECB easing have increased, while the market has started to re-price an earlier BoE rate hike occurring following the hawkish FOMC.”

“We also judge the stronger likelihood of a December ECB easing will support foreign investment into the UK debt market, strengthening our conviction for GBP outperformance. We also believe the current market pricing for the spread between the Fed and BoE rate hike timing is still too wide and we see a strong chance of Super Thursday this week encouraging the market to re-price the timing of a BoE rate hike.”

“Because of this positive mid-term outlook for GBP and likely acceleration in the near-term GBP appreciation into Super Thursday, we recommend having GBP long exposure now. We have been mostly trading GBP long against low-yielding European G10 currencies (EUR, SEK, and CHF), and in the medium term, we still prefer GBP long positions against these currencies.”

“However, in the near term, we want to be more neutral from risk sentiment and EUR/USD movements ahead of key US data and scheduled speeches from the Fed and ECB. Thus, we recommend having a GBP long basket against USD, EUR, and NZD (equally weighted).”

“Market pricing has been brought forward from 2017, but we still believe a further market repricing should occur and that Super Thursday could be a catalyst for this, which overall would be GBP positive. We do not expect other dissenters at the meeting this week, which could lead to knee-jerk GBP selling, but the market will likely swiftly focus on an upward revision in the mid-term inflation forecast, which reflects the consensus or core members’ view.”

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