As indicated by yesterday’s stronger than expected October retail sales and November CBI industrial trends data, a positive reassessment of the UK economic outlook appears overdue.
Indeed as we argued in our weekly publication, upcoming Q4 data should show policy tightening expectations have been pushed back too far by the BoE latest inflation report.
In turn, we expect a strong GBP recovery into year-end given as this reassessment triggers short positioning capitulation.
EUR/GBP appears particularly vulnerable to such a capitulation given the margin by which it has recently overshot short-rate FRA spreads despite a dovish ECB policy shift.
Thus while it is true BoE tightening expectations were running too high at the end of Q2 given a weak Eurozone, equally those same expectations have now been pushed too low if latest evidence is any guide.
We remain long GBP/CHF.
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