Story
Citi Adopts Tactically Bearish Stance on British Pound Ahead of PM Transition
Citigroup has adopted a tactically bearish view on the British pound, anticipating a potential rise in the euro-to-sterling exchange rate following the expected appointment of Andy Burnham as Prime Minister later this month.
A Tactical Short on Sterling
In a note to clients, Citi analysts said they see scope for the euro to strengthen against the pound, targeting the 0.8450-0.85 area. The bank characterizes this as a tactical position, noting that high carry costs associated with shorting the pound necessitate a specific catalyst for the trade.
Citi's strategists suggest that any near-term dips in the EUR/GBP currency pair could present an opportunity to position for a rebound after July 20, the date Burnham is expected to be officially appointed. The bank also noted that the pair appears undervalued when measured against relative interest rates.
AdPolitical Change as a Catalyst
The bank's short-term bearish outlook is rooted in historical precedent. Citi observed that the EUR/GBP rate has drifted upward following the last four post-Brexit prime ministerial changes.
Analysts attribute this pattern to a market dynamic where optimism about a new leader is fully priced in before they take office, leaving room for disappointment once the realities of governing set in. While the market has reacted positively to Burnham's recent comments on maintaining fiscal rules, a high degree of uncertainty remains over his specific policy decisions, including key cabinet appointments like the Chancellor of the Exchequer.