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Citi Turns Tactically Bearish on British Pound Ahead of New PM Appointment
Citigroup has adopted a tactically bearish view on the British pound, anticipating the currency will weaken against the euro following the expected appointment of Andy Burnham as the UK's new Prime Minister after July 20.
A Tactical Shift on Sterling
In a research note, Citi analysts said they see scope for the EUR/GBP currency pair to climb toward the 0.8450-0.8500 area. The bank identified the upcoming leadership change as a specific catalyst needed to time a short position in the pound, noting that high carry costs make timing crucial.
Strategists suggest that any near-term dips in the EUR/GBP rate could offer a tactical opportunity for investors to position for a subsequent rise after Burnham officially takes office.
AdHistorical Precedent and Market Psychology
Citi's outlook is guided by a historical pattern observed after all four prime ministerial changes in the post-Brexit period, which saw the EUR/GBP pair drift higher. The bank attributes this to a dynamic where market optimism is fully priced in ahead of a new leader's term, leaving room for disappointment once "reality sets in."
While the market has reacted positively to Burnham’s comments on maintaining fiscal rules, Citi highlighted that a high degree of uncertainty remains over his exact policies, including the key appointment of chancellor. According to the bank's analysis, the EUR/GBP cross is also screening as undervalued when compared to relative interest rates.