The GBP Bid Can't Be Sustained

Sterling bulls should enjoy the relief rally whilst it lasts.

GBP/EUR touched fresh six-week highs this morning, with GBP/USD up over three big figures from November lows. Lest we forget, GBP performed well over H1, although we argued this was mainly due to weaker legs stemming from underperformance against G10 peers.

This fresh leg higher into year-end doesn’t sit too well with us, and although it’s unwise to fight the market, we don’t believe this bid can be sustained for any material period of time. Reasoning ranges from potentially mispriced Bank of England (BoE) rate pricing through to a continued ebbing out of UK growth expectations.

After closing out our long EUR/GBP seagull back on Nov 18th, we don’t have any GBP exposure on the book. We feel there will come a time in the near future to add short GBP expressions.