Synopsis:

Bank of America maintains a bullish view on GBP, expecting it to outperform forward market pricing. Their preferred expression is through a lower EUR/GBP, based on improving UK trade dynamics and the potential for renewed investment inflows into the UK.

Key Points:

• Constructive GBP Outlook: BofA's GBP forecasts are more bullish than the forwards, and they see upside in the currency over the coming months.

• EUR/GBP as the Trade: The bank prefers to express its bullish GBP view via a short EUR/GBP position, rather than GBP/USD.

• UK Trade Talks Improve Sentiment: Progress in UK trade negotiations could unlock fresh foreign direct investment (FDI) and portfolio flows that have been subdued since Brexit.

• Limited UK-EZ Asset Reallocation Risk: While Eurozone reforms may incentivize capital rotation within Europe, BofA sees limited contagion from these flows into the UK market.

Conclusion:

BofA recommends embracing GBP strength, particularly through short EUR/GBP trades. With UK trade momentum improving and potential capital inflows on the horizon, the sterling could continue to surprise to the upside.