Limited upside room for GBP - Nomura

Analysts at Nomura note that the GBP has begun to react again to UK data, when data show potential early signs of economic weakness.

Key Quotes

“As the BoE is unlikely to consider tightening anytime soon, real yields should depress GBP. In the short term, risk events outside the UK may support GBP via position adjustment and hedging, but we expect lower UK real yields to slow portfolio inflows into the UK, limiting upside room for GBP.”

“GBP/USD has traded in a 1.24 to 1.26 range for a few weeks now with several tests to that range coming to little avail. Much rests on the content of Trump’s tax plan this week, so we would be cautious about changing our core view that GBP should trade to the low side of its range. However, given our view that the USD will trade weakly from here, we have not recommended GBP/USD shorts, but instead prefer short GBP/NZD. If President Trump fails to deliver a marketpositive tax plan and GBP/USD breaks above 1.27 momentum may be enough to drag it back to the middle of its pre-October range of 1.28-1.35. Nonetheless, we recommend fading any meaningful spike higher as we would expect it to settle around 1.30 and then fall again, even if President Trump disappoints.”