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18 Sep 2014
GBP strategy on a Scottish 'yes' vote - Nomura
FXStreet (Bali) - In the event of a “yes” vote, Nomura recommends to continue shorting GBP against USD rather than EUR.
Key Quotes
"In the event of a “yes” vote, we recommend to continue shorting GBP against USD rather than EUR. An earlier tightening by the Fed than other G10 central banks is the primary reason, but we judge the “yes” vote will increase the likelihood of Brexit, which will be more negative for the euro area economy than the US economy. In addition, the “yes” vote may also accelerate momentum in the independence movement in some parts of the euro area. We expect EUR/GBP to rise after the “yes” vote, but we prefer to stay short GBP against USD than EUR after the “yes” vote."
"Our economist believes the BoE can still start hiking in August 2015 after the “yes” vote, which is earlier than our clients expect. The likelihood of a May 2015 hike cannot be ruled out, if the general election is postponed until after independence takes effect in 2016. The BoE‟s first rate hike in 2015 will be still regarded as an early move among the European G10 central banks, which will likely support GBP against the European G10 currencies. GBP weakness can also encourage foreign equity flows in the medium term. Thus, the likely depreciation of GBP after the “yes” vote may provide a good opportunity for GBP long positions, especially against EUR and other European G10 currencies."
Key Quotes
"In the event of a “yes” vote, we recommend to continue shorting GBP against USD rather than EUR. An earlier tightening by the Fed than other G10 central banks is the primary reason, but we judge the “yes” vote will increase the likelihood of Brexit, which will be more negative for the euro area economy than the US economy. In addition, the “yes” vote may also accelerate momentum in the independence movement in some parts of the euro area. We expect EUR/GBP to rise after the “yes” vote, but we prefer to stay short GBP against USD than EUR after the “yes” vote."
"Our economist believes the BoE can still start hiking in August 2015 after the “yes” vote, which is earlier than our clients expect. The likelihood of a May 2015 hike cannot be ruled out, if the general election is postponed until after independence takes effect in 2016. The BoE‟s first rate hike in 2015 will be still regarded as an early move among the European G10 central banks, which will likely support GBP against the European G10 currencies. GBP weakness can also encourage foreign equity flows in the medium term. Thus, the likely depreciation of GBP after the “yes” vote may provide a good opportunity for GBP long positions, especially against EUR and other European G10 currencies."