FxWirePro: GBP cheaper among G10 but Scandis seem more economical over sterling

GBP appears to be the cheapest among G10 space on this framework cross-section ally, but still, has room to weaken further relative to its history. GBP has been one of the underperformers within G10 over the past two months and remains the cheapest currency with G10 when ranked cross-section allies on this framework.

However, the currency has room to weaken further relative to fair value since historically (in 2008), it traded as much as 20% cheap to fair value. Our macro view remains structurally bearish on GBP and we do not believe that a further 5-10% weakening is not unreasonable given the dependence of UK on foreign capital.

SEK has outperformed within G10 since our outlook was published on November 22nd but still continues to screen cheap on this framework. SEK has strengthened by 3.5% vs. EUR and by 4% in REER terms since then.

While SEK now screens fair on some metrics, it continues to screen as the second-cheapest G10 currencies on this metric and thus has room for outperformance.

This cheapness is consistent with our constructive macro outlook on SEK which is based on improving inflation dynamics and a central bank becoming increasingly reluctant to ease further.

Petro-currencies have outperformed over the past two months, boosted by a 13% increase in oil prices, but continue to screen near fair value on this metric. Within G10, CAD has been the primary beneficiary (REER +3.4%) while NOK has been surprisingly resistant over this period (REER is unchanged) despite the 13% increase in oil prices. Both NOK and CAD continue to screen near fair value on this metric, although NOK offers relatively more value.