Forex Flash: EUR/GBP move could change quickly given EUR stasis – UBS

According to Research Analyst Gareth Berry at UBS, “For investors tracking the sterling's performance against a basket of currencies looking for valuation 'turns', the EUR/GBP valuation could occur more rapidly compared to the GBP/USD. This fits the fundamental view as well – excessive euro appreciation is probably something the Eurozone is still not ready for at this stage, and as investors begin to price in the growth/monetary consequences, GBP would be in a position to benefit.”

Of course, mean-reversion in currency valuations is often subjective and subject to further shifts in economic progression (i.e. trend catching up to spot on a persistent basis), but now that the move in sterling has begun in earnest, these factors should play a bigger role up ahead. Unfortunately, waiting for extremes to develop does mean further weakness can be expected.