Lately, the pound has strengthened significantly towards the US greenback, primarily pushed by momentum. From a price perspective, HSBC economists imagine the current power in GBP is unwarranted and cable seems overloaded.

Key quotes

“The UK’s financial restoration stays lackluster relative to others. The HSBC UK Shock Exercise Index is among the few sideways tendencies, not upward, exhibiting that the financial system isn’t beating expectations just like the US or the Eurozone are.

“UK ahead charges have risen this yr as destructive charges have been eradicated, however this improvement has been broadly consistent with what has occurred in different G10 charge markets, significantly within the US. United. Since charge spreads are what ought to matter for the change charge, the motion in charges doesn’t justify the numerous rally within the GBP. ”

“UK shares are nonetheless lagging behind, suggesting that it’s not inflows of overseas shares which are driving the outperformance of the GBP.”

“Momentum is clearly a robust drive in FX, however we have constructed a invaluable case for why the GBP is overexploited and this case will not change till the basics behind it change. For a forex, the hazard of going past your grip isn’t of reaching heaven, however of creating a foul comeback when momentum wanes.