The British pound continued to decline this week, deviating from the trajectory of UK bond yields. Deutsche Bank (ETR:) recommends selling the pound on a broad basis, taking into account trading positions.
The bank noted that the pound was the worst-performing currency since the start of the year, marking a sharp decline similar to that seen after the UK budget announcement in early November.
Deutsche Bank analysis showed the UK’s current account deficit is unlikely to improve and rising volatility-adjusted yields are at risk of deteriorating further. The report also notes that the pound has become increasingly dependent on cash flows, which are now under threat.
After taking profits on long pound positions in mid-December, Deutsche Bank strategists changed their position and recommended selling.
The report provides further context, saying the pound has fallen by just over 1% on a trade basis since the start of the year. While historically this decline is not considered significant, the pound’s recent performance against the strengthening US dollar has been noticeably weak, with few currencies missing multi-month or multi-year lows against the US dollar.
Deutsche Bank’s recommendation comes after the pound moved in the opposite direction of UK bond yields on Wednesday, reminiscent of the pattern seen after the UK budget.
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