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Sterling is taking on ’emerging market’ characteristics: Bank of America


A trader pauses while monitoring financial data on computer screens at ETX Capital, a broker of contracts-for-difference, in London, U.K. on Friday, Oct. 7, 2016.

Chris Ratcliffe | Bloomberg | Getty Images

LONDON – SterlingIt is in danger of emerging as an “emerging currency” currency, due to its falling growth rate and rising risks. This causes investors to flee to the pound. Bank of America.

Sterling was down by 7% as of Tuesday afternoon in Europe dollarTrading is now at $1.26 year to date, compared with $1.22 in the previous month.

Short positions have been mountingAs the international economic risks of war in Ukraine and inflation, slowing growth and supply chain disruptions converge, the currencies are being depreciated. Bank of EnglandThe fallout of Brexit and its unique predicament.

BofA senior G-10 FX strategist Kamal Sharma stated Monday that further weakness in the Pound can be expected through 2022.

He also rejected any similarities between the tightening of the monetary environment and that in the aftermath. U.S. Federal Reserveand Bank of England, who argue that their reaction functions are distinct.

The BoE faces unique challenges, and it is unwilling or unable to talk about Brexit. Sharma indicated that the BoE has a complicated communication strategy. Sharma claimed that raising rates to compensate for a weakening economy would be a bad idea.

Although fiscal stimulus and an alleviation from the risk environment may be helpful, the damage is already done. The outlook for GBP appears grim.

This is the preferred way to capitalize on Sterling’s “epic” fall in grace for BofA. euroSharma said that against the pound.

George Saravelos also echoed the sentiment Tuesday. Deutsche BankCNBC spoke with the global head of FX research at, who said that there was greater optimism regarding European growth and “nonlinear” effects from the European Central Bank’s return to positive rates meant the euro could outperform the dollar as well.

“If you look at what was happening into U.K. inflows, they were going sideways and as soon as the ECB went negative you saw a big acceleration of inflows into the U.K. – purchases of, for example, U.K. gilts,” Saravelos said.

“As that dynamic changes and the Bank of England is much closer to stalling – it’s a reluctant tightness, so to speak – you should see euro-sterling significantly higher. By next year, we expect it to be at least 90 pence.”

As of Tuesday afternoon, the euro was trading at just above £0.85.

The U.K. economy shrank by 0.1% in MarchEconomists expect further contractions in the coming year as the cost-of living crisis continues to fester. Due to spiralling energy and food prices, the annual inflation rate jumped from 9% to 9% in April.

Parallels to 70s

Sharma pointed out that the U.K. has seen its Net International Investment Position decline in recent years due to foreign investors holding large amounts of U.K. assets.

The NIIP, which measures differences between U.K.-owned asset claims by non-residents and U.K.-owned claims for U.K. resident residents, is an important indicator of a company’s financial strength.

Sharma explained that there are two possible risks to this strategy. One, foreign investors may repatriate some of their U.K. assets if they feel the U.K. economy is in decline (asset allocation shift as a result of ending negative interest rates elsewhere), or the stock of U.K. U.K. assets might continue to be a burden on primary income.

No matter what the reason, external trade will be a growing focus of markets. The UK’s economy is struggling under higher inflation and slow growth.

U.K. assets now cost more than they did in 2021. Inflows were substantial and the pound is becoming less “undervalued” that models indicate.

After announcing that it would continue to raise interest rates in an effort to control inflation, the Bank of England expects to do so again. fourth consecutive hike took its base rate to a 13-year highInflation of around 1% in the first half of May Due to the Russia-Ukraine War and ongoing lockdowns by China, inflation is expected to reach 10%.

Bank of America strategists have become increasingly doubtful that Bank of America’s defense mechanism could save the pound.

Sharma explained that, “Though it isn’t our central scenario,” sterling seems to be in an increasingly troubled position. He said, “Where central bank communication was increasingly difficult, where imbalances were rising, and where the specter Brexit still looms large on domestic politics scene.”

GBP is being discussed by investors as an emerging market. However, parallels to 1970s seem to be a strong argument for GBP’s demise.

He stated that Wall Street is concerned about the U.K.’s “increasingly politicization” and that it could undermine the pound in ways “that would appear EM-like”, suggesting that investors might hedge for the loss of the pound’s status as a trusted global currency.