Music to my ears or the kiss of death?
As you know I'm a long term shorter of the pair and Goldies has weighed in with a call that the pair will fall to 0.6500 in 12 months and their reasoning is thus;
"We believe EUR/GBP's relatively steady decline reflects the ongoing outperformance of UK activity, firming price pressures in the form of wage growth which is trumping low inflation prints, and incremental hawkishness in central bank communication.
As we have argued, against the backdrop of ECB QE, Sterling should continue to benefit as the Bank of England moves towards exit from its post-crisis policy accommodation on the back of a strong economy and tightening labour market. We think the current account deficit overstates the risk to GBP (link), and the impact from renewed fiscal tightening included in the July government budget will only have modest impacts on the BoE's growth projections."
Their analysis fits in with mine on the policy and economic divergence between Europe and the UK. The only part I'd argue against is the 12 month call. That would put us 2 months away from the end of QE and we'll have a far better idea of the state of the economy, and could be going through another taper episode.
While I like shorts still I'm going to be very watchful for a proper turnaround in Europe as that will be the time to bail on shorts
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