GBP/USD: A return to normality should favor the pound – CitiBank
|Analysts at Citibank point out that when FX volatility is elevated, the pound is high beta to risk-on, risk-off, risk-on/risk-off so they warn that, in the short-term in global equity markets, another leg lower will weigh on Sterling.
Key Quotes:
“When FX volatility is elevated, GBP is high beta to risk-on, risk-off (ro-ro) dynamics. In the short term, heightened risk aversion/ another leg lower in global equity markets will weigh on Sterling. That said, there is no doubt that GBP is fundamentally cheap, and we note the reluctance of Cable to trade <1.18. A return to a more ‘normal’ economic/ market regime should see GBP trade more robustly and drift back towards levels witnessed at the beginning of 2020 (around 1.29-1.34).”
“GBPUSD‘s daily momentum is the most overbought it has been since we went to the peak in Dec 2019, with resistance at the convergence of 50d and 200d MA which at 1.2613 and 1.2726 respectively, and with support at 1.1959 and 1.2166.”
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