Timing the UK Trade
BoE Governor Mervyn King delivers his final Inflation Report this week and he would be relieved that data is finally stabilising. However, political gyrations over the UK’s relationship with Europe are dominating headlines again in the wake of the Local Elections. This was a major source of uncertainty and downside risk for sterling in Q1. Yet, despite the apparent escalation of UK-EU separation risks (especially with EU membership referendum legislation on the way), the markets are now taking such developments in their stride and if anything, sterling interest is growing. We still see compelling reasons to be ‘short’ UK fundamentals, but it is now clear that investors would have to tread carefully. However, when fundamentals, correlations and positioning align, being short GBPUSD will offer the best risk: reward, though now may not be the best time.
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