The attractiveness of UK equities relative to global peers leads us to remain tactically bullish GBP in our long-only asset-allocation portfolio. For leveraged portfolios too, we outline several tactically bullish arguments based on FX fundamentals for adding GBP longs.
Balance of payments flows have swung strongly in favour of sterling, which is related to the multi-year oversold nature of GBP assets. Net equity flows, which we expect to be strongly positive – are a significant support for sterling.
At the same time, repricing in Gilt term premia is set to stay on par with that in US Treasuries. Our forecasts point to UK nominal growth outperformance. We add long GBPUSD and long GBPCAD trades to our list of high-conviction calls.