Deutsche Bank sees potential for a short-term rebound in the British pound against the euro, even as it sticks to a bearish outlook for sterling through the end of the year.
The bank highlights recent weakness in market sentiment toward the pound, driven by growing fiscal worries and disappointing UK economic data such as sluggish GDP and retail sales. Still, Deutsche Bank argues that this negative sentiment is now largely priced in.
Citing Commitment of Traders data from July 22, the bank notes a sharp increase in short positions on the pound by asset managers—levels that have historically preceded recoveries in sterling. Over the past 15 years, similar spikes in bearish bets have often been followed by the pound regaining ground against the euro within six weeks.
The recent drop in EUR/GBP aligns with this pattern, although Deutsche attributes the euro’s broader weakness to a “sell the fact” reaction following the EU’s recent agreement with the U.S., rather than a shift in the Eurozone’s economic outlook.
While a short-term bounce in the pound is possible—especially if the Bank of England avoids signaling a dovish turn at its next meeting—Deutsche Bank is sticking to its year-end EUR/GBP forecast of 0.87, reaffirming its longer-term bearish stance on the British currency.
