By Samuel Indyk
Investing.com – Mitsubishi UFJ Financial Group (MUFG) has recommended a new long position in a recent research note, saying the fundamental case for stronger GBP remains in place in the near term.
“Key COVID metrics continue to improve in the UK supported by the successful vaccine roll out,” MUFG analysts say. “It should allow the UK government to re-open the economy as planned in the coming months.”
The bank argues that the recent correction lower for GBP does not reflect a material deterioration in positive fundamental drivers that have helped it to outperform this year, alongside the USD and the CAD.
In fact, they say that the release of much stronger than expected PMI surveys for March provides a positive signal that the renewed contraction in Q1 GDP will likely be smaller than expected, followed by a more robust growth bounce back in the second quarter.
They also highlight strong seasonality trends that could favour GBP.
“April also tends to be a strong month for GBP performance,” the bank said. “Cable has risen on average by around 1.5% in April over the last twenty years.”
On the other side of the trade, MUFG note that the SEK has been the most correlated G10 currency to emerging market equity performance.
“Market conditions have become more challenging for emerging markets recently as US yields have moved higher and the USD has rebounded,” they note. “Developments in Turkey last weekend have provided a further challenge for emerging markets. In light of these developments, we see scope for the SEK to underperform further.”
The Japanese financial services company opened the trade at 11.90 with a target of 12.35 and a stop loss at 11.65.
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