Citi has signalled a tactical bearish view on the pound, saying there is room for EUR/GBP to push toward the 0.8450-0.85 area. The bank, however, emphasises that any trades betting on sterling weakness should be timed carefully because of the expense of holding short positions and the requirement for market-moving triggers.
Central to Citi's outlook is the sequence of events around July 20, the date when Andy Burnham is expected to be formally appointed Prime Minister. The bank suggests that this calendar milestone could serve as a catalyst for shifts in the currency pair's direction.
Looking at past transitions, Citi notes that each of the four post-Brexit changes in the prime ministership saw EUR/GBP drift higher. The bank interprets this pattern as consistent with an initial market optimism priced in as a new leader assumes office, followed by potential disappointment once policy and reality are revealed.
Market reaction to Burnham so far has included a favourable reading of his remarks on maintaining fiscal rules, which investors have taken as supportive for sterling. At the same time, Citi flags substantial uncertainty about the precise policy choices Burnham will make, including whether he will retain Reeves as chancellor. That uncertainty feeds into the bank's recommendation to be selective and tactical with position entry.
Given these dynamics, Citi says it prefers to use any near-term EUR/GBP weakness - particularly moves toward the 0.845-0.85 zone - as an opportunity to position for a subsequent euro appreciation after July 20. The bank also states that EUR/GBP appears undervalued on a relative rates basis, supporting its view that the pair has scope to move higher.
In sum, Citi's message combines a tactical readiness to exploit dips in EUR/GBP with a cautionary note about the costs and prerequisites of running short-sterling positions. The appointment of a new prime minister and the clarity - or lack thereof - around fiscal and staffing decisions are the key near-term factors the bank is watching.