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Investing.com - Deutsche Bank (ETR:DBKGn) suggests the British pound may be poised for a short-term recovery against the euro despite maintaining its overall bearish outlook for sterling through year-end.
The bank notes that market sentiment toward the pound has deteriorated in recent weeks amid renewed fiscal concerns and disappointing economic data, including weak GDP figures and retail sales. However, Deutsche Bank believes this negative stance is increasingly reflected in market positioning.
According to Commitment of Traders data from July 22, asset managers have rapidly built up bearish sterling positions against the euro, reaching levels that historically have been followed by pound recoveries. Deutsche Bank’s analysis shows that in the six weeks following similarly sharp buildups of sterling shorts over the past fifteen years, the pound has typically regained ground against the euro.
The bank points to the recent decline in EUR/GBP since the start of the week as consistent with this historical pattern, though it attributes broader euro weakness to a "sell the fact" reaction to the EU’s deal with the United States rather than a fundamental reassessment of the Euro Area outlook.
Despite the potential for short-term pound strength, particularly if the Bank of England avoids a dovish pivot at its upcoming meeting, Deutsche Bank maintains its longer-term bearish view on sterling with an unchanged year-end EUR/GBP forecast of 0.87.
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