The British pound has continued to move lower this week, weighing in on UK yields. Deutsche Bank (ETR:) recommends selling the pound based on a broad, trade-weighted basis.
The bank noted that the pound was its worst performing currency since the start of the year, marking a sharp decline similar to that seen after the UK budget announcement in early November.
Deutsche Bank's analysis showed that the current account deficit in the UK is unlikely to improve, and that the volatility-adjusted output is at risk of further decline. The report also pointed out that the note had become increasingly dependent on carrier inflows, which are now at risk.
After taking profits on their long positions on the pound in mid-December, Deutsche Bank strategists have shifted their stance to recommend selling.
The report provided additional context, saying the pound is down just over 1% on a trade-weighted basis since the start of the year. Although this decline is not considered historically large, the recent performance of the pound against the strengthening US dollar has been very weak, with only a few currencies not at multi-month or multi- year against the USD.
Deutsche Bank's recommendation comes after it noted that the pound on Wednesday moved in the opposite direction to UK yields, recalling the pattern seen after the UK budget announcement.
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