The British pound has fallen further this week, deviating from the trajectory of British interest rates. Deutsche Bank (ETR:) recommends selling the pound on a broad, trade-weighted basis.
The bank noted that the pound has been the worst performing currency since the start of the year, marking a sharp decline similar to that seen following the UK budget announcement in early November.
Deutsche Bank’s analysis found that Britain’s current account deficit is unlikely to improve, and the volatility-adjusted rate hike risks worsening further. The report also pointed out that the pound was becoming increasingly dependent on carry inflows, which are now at risk.
After taking profits on their long positions on the pound in mid-December, Deutsche Bank strategists changed their stance and recommended a sell recommendation.
The report provided additional context, stating that the pound has fallen just over 1% on a trade-weighted basis since the start of the year. While this decline is not considered large historically, the pound’s recent performance against the strengthening US dollar has been notably weak, with only a few currencies not at multi-month or year lows against the USD .
Deutsche Bank’s recommendation follows the observation that the pound moved in the opposite direction to UK yields on Wednesday, reminiscent of the pattern observed following the publication of the UK budget.
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