J.P.Morgan: Sell GBP Vs A 50:50 Basket Of USD And CAD

Friday saw J.P.Morgan note that "GBP had outperformed the relative re-pricing in UK interest rates in recent weeks. Thursday's sell-off in GBP has corrected this performance gap somewhat, but not fully and with the incessant upward momentum in GBP now having been broken, we believe GBP is vulnerable to a paring back of momentum-seeking positions that have been built up in recent weeks. We have been surprised by the extent to which GBP has been buoyed by the vaccination story. The faster pace of vaccination in the UK will make little or no difference to the performance of the UK economy over the multi-quarter periods that matter for most investors. Already there are signs that the vaccination gap between the UK and the rest of DM may be peaking. The UK budget should be a mixed bag for GBP - on the one hand it should detail an extension of fiscal support for the economy through the expiration of the lockdown but on the other it should set out a roadmap for fiscal consolidation once the pandemic is over. Given valuation, positioning and the fading of vaccination as a uniquely positive story for the UK economy we are opening a tactical short in GBP. We do so vs. a 50:50 USD, CAD basket to insulate the position from overall risk market trends. GBP is high-beta and in order to neutralize this effect we include CAD as another high-beta currency. Also, a financial high-beta currency such as GBP should be more vulnerable to rising U.S. Treasury yields than a high-beta currency such as CAD that still enjoys robust terms of trade support."