Deutsche Bank believes the British Pound is positioned for a short-term relief rally on Wednesday, provided that the government’s budget avoids negative surprises related to gilt issuance, near-term deficit projections, and the amount of remaining fiscal headroom.
The bank notes that market positioning in Sterling has turned net short, making the currency more sensitive to any outcome that turns out “better than expected.”
The bar for a positive market reaction is relatively low. Deutsche Bank expects gilt issuance volumes and the deficit path for the coming year to remain close to current forecasts, while fiscal headroom of around £16 billion would likely be seen as broadly acceptable by the market.
A clear and predictable delivery of the budget on these fronts, according to the analysts, should prompt a recovery in the Pound after several weeks of selling driven by political risks.
However, political uncertainty continues to weigh on the currency’s outlook.
Deutsche Bank warns that leadership risks in the months ahead mean that even if the budget is well received, any rebound in the Pound is unlikely to fully erase the built-in risk premium.
Forex Analyst & Educator
Sagar Dua has been associated with financial markets since his college days. He was pursuing a postgraduate degree in Commerce in 2018 when he started honing his skills at chart analysis and slowly mastered the art of fundamental principles as well as technical analysis.
Finance took him to academia and he ended up as an Assistant Professor at a public university sharing business students for one year. Eventually, Sagar passionately mentors newbie traders and investors by conducting several seminars and webinars on his expertise about the Forex market. Apart from financial acumen, motivational speaking runs in his veins to inspire people towards success in trading and finance
