Societe Generale notes that Sterling has been the strongest G10 currency since the Makerfield by-election, helped by a still-sizeable but reduced speculative short base. The bank highlights further room for gains, especially on EUR/GBP and GBP/JPY crosses, supported by M&A flows in GBP/USD and a recent upgrade of UK assets to overweight by a US bank, alongside Societe Generale’s own overweight stance on UK stocks.

Sterling outperforms with room to run

"In the UK, notwithstanding concerns over the Labour party tacking left under Andy Burnham, sterling is the best performer in G10 by a distance (1%) since the by-election in Makerfield on 18 June."

"The short speculative base of 35.5% of OI (as of late June) has been trimmed back but in theory leaves further room for the currency to catch up, perhaps more so on cross basis (EUR/GBP, GBP/JPY?) than outright vs the dollar."

"There was further M&A support for GBP/USD over the weekend after Castlelake submitted a cash bid of £5.2bn to purchase EasyJet."

"We took note on Friday of the bullish note and portfolio ratings upgrade for sterling assets from market-weight to overweight by a US bank. Our own Asset Allocation team is overweight UK stocks based on superior dividend returns."

"The Labour leadership contest kicks off on Thursday and nominations close on 16 July. Without a challenger, Andy Burnham would be formally appointed PM on 20 July."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)