The British pound continued to fall this week, diverging from the UK yield trajectory. Deutsche Bank (ETR:) recommends selling the pound on a broad trade-weighted basis.
The bank noted that the pound is the weakest currency since the start of the year, recording a keen decline similar to that seen after the UK budget was announced in early November.
Deutsche Bank analysis has found the UK current account deficit is unlikely to improve and volatility-adjusted yield growth is at risk of further deterioration. The report also indicated that the pound was increasingly dependent on bond inflows, which are now at risk.
After realizing profits on long positions on the pound in mid-December, Deutsche Bank strategists changed their position and recommend selling.
The report provided additional context, stating that the pound had fallen by just over 1% on a trade-weighted basis since the beginning of the year. While historically this decline is not considered vast, the recent performance of the pound against the strengthening US dollar has been particularly indigent, with only a few currencies failing to hit multi-month or year lows against the US dollar.
Deutsche Bank’s recommendation comes after observations that the pound moved in the opposite direction to UK yields on Wednesday, resembling a pattern seen after the UK budget was published.
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