BNPP: Opportunity to add long GBP exposure ahead of next week’s BOE events
Our UK economist expects Q2 GDP data (released on Tuesday) to signal that the soft Q1 was somewhat of an aberration, with growth expected to return to a solid 0.7% q/q non-annualized pace. This should help refocus the market on the odds for a more hawkish BoE tone at the August meeting and Inflation Report, with several hawkish dissents a distinct possibility by then. Last week’s disappointing retails sales release triggered a clear out of some of the recently added long GBP positions, but we note that the overall macro backdrop is very positive and overall GBP positioning heading into the release was not crowded – our positioning analysis indicates a score of +16 (out of 50) for the GBP. This past week we recommended long GBP correlations trades via options, expecting more idiosyncratic GBP behaviour as we approach hikes. Additionally, EURGBP has moved back in line with its STEER™ in recent days, suggesting that current levels are attractive for entering short positions (we currently hold bearish EURGBP exposure via options in our portfolio).