RBC Trade Of The Week: Short EUR/GBP

RBC note “three G10 central banks announce policy this week. For two (Norges and SNB) a significant minority of analysts look for a 50bp hike, but in the case of the BoE, there is 100% consensus for a 25bp move.”

• “Given the labour market background in particular, we would not rule out a 50bp hike, or a voting pattern suggesting the MPC came very close to a 50bp hike.”
• “For all the talk of GBP trading as an EM currency, with higher rates associated with a weak currency, instances of this have been very rare and GBP has mostly tracked nominal rate differentials in a conventional way recently.”
• “We share many of the longer-term concerns that investors have on GBP (imbalances, valuation, etc), but tactically position for a further repricing of rate differentials in the UK’s favour.”
• The recommendation came with EUR/GBP trading at GBP0.8525, targeting a move to GBP0.8370, with a stop set at GBP0.8600