GBP: Shift in pound positioning is anticipating further strength – MUFG

Analysts at MUFG Bank believe that the British pound should remain at stronger levels in the near-term unless undermined by a continuation of disappointing economic data from the United Kingdom. 

Key Quotes:

“The risk of a No Deal Brexit shock has been pushed back until the end of next year when the transition period is set to expire. The new UK government has already threatened more credibly to leave without deal if an agreement is not reached in 2020 as part of their negotiating tactics to speed up proceedings. However, we doubt that it will be sufficient on its own to threaten the stronger pound at least during the first half of next year. We continue to believe that the pound should remain at stronger levels in the near-term unless undermined by a continuation of disappointing UK economic data flow.”

“Market participants and the BoE are expecting the UK economy to rebound during the 1H 2020 in response to the reduction in political and Brexit uncertainty as well as befitting from the improving outlook for global growth.”

“The latest IMM report revealed that Asset Manager/Institutional investors established a small net long pound position for the first time since the start of 2014 (...) The recent shift in pound positioning has also coincided with the trade-weighted pound attempting to break to the upside out of its post-Brexit referendum range which has held between 2016 and 2019. For the pound to extend its advance on this occasion, it will likely require evidence of a stronger UK data in the coming months.”