The pound has a very busy week with top-tier indicators such as inflation and jobs. Moreover, the BOE decision and the EU Summit on Brexit also promise to be market-moving. Are risks underpriced?
Here is their view, courtesy of eFXnews:
CIBC Research discusses GBP outlook and advises caution on GBP around current levels.
“Call it Brexit-fatigue, or call it simple complacency, but it’s beginning to look like currency markets are underestimating downside risks to sterling.
Implied volatility has been falling and investors have almost fully priced in another hike from the Bank of England by May. However, there remains the possibility that next week’s EU Leaders Summit does not end in an agreement on Brexit transition/implementation. Furthermore, wage growth, while having accelerated, is still negative in real terms, with consumer discretionary spending also looking weak of late.
All this suggests more caution regarding sterling than is currently priced into markets, with the potential for Brexit and BoE disappointment very possible,” CIBC argues.
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