GBP strategy from now until 20 September EU leaders summit - Nomura

Analysts at Nomura explained that already GBP/USD has fallen substantially since the Chequers agreement, but nearly half of that stems from the EUR/USD move.

Key Quotes:

"It suggests that it’s not a materially extended short-term move in GBP just yet and there is scope to suggest that EUR/GBP will head higher. 

"However, based on our observations, it is at these levels just below 0.9050, where the market often tends to fade the range and buy back GBP. We briefly visited the 0.92-0.93 range in 2017, but that was when EUR inflows were in overdrive."

"Given the current mood on the euro area growth picture and the ECB’s forward guidance, GBP weakness is less likely to come from the EUR/GBP leg for now."

"Instead we’d need more Brexit risk pricing to get us back to those levels, something that could accelerate in September, but we see GBP/USD downside to 1.27 and below as the better Brexit hedge trade over EUR/GBP for now. "

"We continue to recommend GBP downside until the political impasse is behind us."