Forex Flash: Risks puts GBP crosses under pressure – UBS

It appears the market is getting more nervous about holding short GBP positions heading into incoming Governor Mark Carney's Treasury Select Committee Testimony on February 7th. Led by asset managers' and hedge funds' selling in EUR/GBP, the pound was the best performer last week in G10 on a flow basis.

Total selling in the cross was the second-highest on record, with real money accounting for just over 65% of the net flow. Given the sterling was still an underperformer over the course of the week, there is clearly good two-way flow in the market, and we note that at 180% of average, weekly volume in sterling (against all currencies) was well above the rest in G10.

“On a fundamental note, risks to GBP remain to the downside, especially if Carney pushes his case for more aggressive tactics once he assumes the governorship. Entrenched EUR/GBP shorts will remain as a tailwind for the cross trading higher and will likely pressure GBP/USD as well. However, in terms of short-term event risk, it is possible that all the bad news for GBP has already been priced in – from policy to politics.” write Research Analysts Gareth Berry and Geoffrey Yu.