Financial institution of America stays bullish on GBP regardless of dangers

Investing.com — Financial institution of America analysts have maintained a bullish stance on the British Pound (GBP/USD), at the same time as they acknowledge elevated draw back dangers and a “glass half empty” investor sentiment.

The agency estimates {that a} danger premium has been a major issue within the forex’s latest weak spot, contributing to roughly 1.2% of the GBP’s decline.

The analysts have expressed confusion over the particular causes behind the surge in UK bond yields, notably within the absence of latest, related information. Regardless of considerations over the UK’s twin deficits and the early timing of those developments within the yr 2025, Financial institution of America’s workforce continues to see a constructive outlook for the GBP. They imagine the market has already accounted for a lot of the detrimental information, though they concede that dangers have escalated.

When it comes to market flows and positioning, GBP longs are thought of susceptible within the quick time period, however total market positioning stays gentle. Latest information signifies a continuation of the pattern of lengthy place liquidation. Nevertheless, Financial institution of America analysts recommend that the present atmosphere could also be conducive to a restoration, given the low expectations surrounding the GBP.

The report additionally discusses the EUR/GBP danger premium, which analysts imagine is about to lower because the market’s focus shifts to the US Greenback (USD). They suggest that buyers trying to capitalize on the declining GBP danger premium may take into account bearish three-month EUR/GBP seagull constructions.

Financial institution of America outlines a number of causes for his or her continued bullish outlook on GBP. They anticipate that UK terminal charges will align with their economists’ Financial institution of England projections, and count on the European Central Financial institution’s terminal fee to regulate extra considerably.

Moreover, they argue that whereas UK progress is constrained by structural elements, it’s balanced by weaker progress in Europe, suggesting the UK may outpace European progress. Lastly, they posit that an accelerated easing cycle could profit GBP if it alleviates stagflation considerations and helps progress with out compromising fiscal stability.