LIVE MARKETS-Sterling's potentially shifting fortunes
Sterling has risen nearly 8% against the dollar this year, but Nomura's FX strategist warns of potential downside risks. Key factors include the Bank of England's quantitative tightening announcement, the upcoming UK budget, and the possibility of a tactical dollar bounce. Additionally, the speculative community is already short on sterling, which may limit negative impacts from further bad news. The STOXX 600 is up 0.4%, with U.S. CPI data and ECB decisions in focus.
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STERLING’S POTENTIALLY SHIFTING FORTUNES
Sterling is up almost 8% against the dollar this year. But its fortune could be about to turn, says Nomura.
The bank’s FX strategist Dominic Bunning says “greater downside tail risks for GBP” is on the horizon and he names a handful of reasons.
1) The Bank of England’s quantitative tightening announcement on Sept. 18. “There is a risk that gilt yields rise sharply, increasing the focus on the UK’s precarious fiscal situation,” he says. GBP has generally been more negatively correlated to large rises in gilt yields, see chart below
2) The UK budget scheduled for Nov 26
3) Room for a tactical dollar bounce
4) “More scope for (BoE) easing to be priced in than out”
5) Positioning risk. The speculative community seems to be already short sterling, Nomura says. “This could limit the follow-through to negative sterling news if investors chose to just hold their positions rather than chase further downward momentum”.
Nomura says is short sterling.
(Joice Alves)
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Cable gilt
