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Investing.com -- Bank of America (NYSE:BAC) is recommending a strategy to sell EUR/GBP, predicting the currency pair will move lower in the coming months.
The bank suggests buying a 6-month 0.8530/0.8350 put spread with a cost of 0.52% EUR, noting that the British pound typically strengthens against the euro in July after showing weakness in June.
According to BofA analysts, EUR/GBP appears overvalued compared to traditional metrics like rate differentials and FX volatility, suggesting the pair could move to at least 0.8320.
The bank’s longer-term outlook is even more bullish for the pound, projecting EUR/GBP to settle into a 0.75-0.80 trading range. This view is supported by several factors, including the UK’s dominant service sector, which should protect the economy from potential tariff impacts.
BofA also points to the UK’s trade deal with the US as a positive factor, along with reduced trade barriers with the EU despite the broader global trend toward protectionism.
The analysis indicates that geopolitical factors may drive closer UK-EU links, while the UK economy is expected to outperform the Eurozone this year. The bank also notes that the pound has not yet benefited significantly from this year’s USD supply, with GBP positioning remaining light.
Risks to this trade strategy include renewed geopolitical tensions or positive developments in European fiscal or defense implementation.
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