EURGBP: BNP Paribas See Upside Risk to EURGBP View

BNP Paribas write that they doubt cross-border flows from UK investors will provide a material support for GBP ahead, and maintain a bearish outlook over the medium-term. As such they see upside risks to their EURGBP 0.88 year-end 2026 forecast.

• On record retail investor flow into US equities, they see little reason for any FX effect as a result of repatriation - even with government policy looking to incentivise domestic investment. They see $7bln YTD buys of US equities from UK retail - a record high.
• They also contrast the UK with other regions, in that FX hedging from pension funds is unlikely to be meaningful for the FX rate. They estimate UK pension funds hold $900bln in US assets, and estimate a higher FX hedge ratio would only result in $52bln of USD sales - half of that seen for the Eurozone (and on par with smaller Australian holdings).
• We wrote yesterday that spot weakness is calling into question the sell-side view for GBPUSD. Prices are now considerably below consensus for year-end (1.35) and a soft finish to the year will likely trigger a phase of expectation revisions among the sell-side, particularly if the BoE proceed with a BoE rate cut this week - against median consensus, but a growing view among analysts. The pair has now retraced 38.2% of the year's rally, making 1.2945 a key support headed through the end of the year.