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STERLING: VIEW: Tuesday saw Bank of America Research note "the breakdown in GBP
liquidity conditions since the Brexit referendum is an important anchor. Using
turnover statistics from the BIS Triennial Survey alone one would conclude that
the depth of the GBP market should have provided some cover against vol. This
has not been the case and, in our view, Brexit is likely to permanently alter
the way in which investors view GBP. The analysis of GBP cannot, therefore, be
undertaken within a traditional G10 FX framework. A more bespoke view of the
pound is required and one that would take an EM-esque view, particularly as the
UK's internal and external debt dynamics morph into comparisons with some of the
more developed EM nations. For us, the headwinds to GBP are gathering and this
is why we continue to believe traditional valuation metrics vastly over
exaggerate the degree of GBP undervaluation...In summary, we believe GBP is in
the process of evolving into a currency that resembles the underlying reality of
the British economy: small & shrinking with a growing dual deficit problem
similar to more liquid EMFX. We remain defensive on GBP but to avoid USD
exposure we believe investors should focus on a lower GBP vs. EUR, JPY & CHF."