Synopsis:

Bank of America observes that the British Pound (GBP) has begun to exhibit a return to stability, suggesting that the worst of the idiosyncratic, UK-specific risks might be over. However, due to the absence of strong positive catalysts, this has resulted in a situation where any appreciations in the value of the GBP remain moderate, unable to breach the trading boundaries set post-Brexit.

Key Points:

• "GBP Reset" Concept: Bank of America outlines the idea of a "GBP Reset," which implies that while the GBP has rid itself of some UK-specific risks, structural challenges in the UK economy will likely keep it within a lower trading range established since 2020.

• Global Risk and Rate Sensitivity: The GBP is realigning with its traditional anchors, such as global risk sensitivity, and is showing increased responsiveness to interest rate changes, indicating a return to more normal trading influences.

Conclusion:

Bank of America highlights a semblance of normality returning to the GBP as it moves away from the volatility and declines driven by UK-specific events and uncertainties. The GBP's performance is now being influenced more by traditional economic indicators like global risk appetite and interest rate differentials, suggesting that while significant gains may be capped, the currency may enjoy a more stable period ahead.