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Position: Long British Pound (FXB)

As is typical for Mondays, we release our weekly European Risk Monitor. While risk continues to trend higher across Europe’s periphery, Greece experienced a noticeable inflection in sovereign cds late last week (see chart below). Despite the turn, we continue to stress that a restructuring of Greek public debt is a question of when, and not if, and therefore we expect cds and government bond yield charts to trend up and to the right for peripheral countries.

European Risk Monitor: Currency Strength Ahead of ECB and BoE Decisions - bankaa

Our European Financial CDS Monitor (below) shows that bank swaps across Europe were mostly tighter week-over-week, tightening for 31 of the 39 referenced entities and widening for 8.

This week we expect both the EUR and GBP to perform well against the USD as both the ECB and BoE continue to signal a hawkish stance on inflation going into interest rate decisions this Thursday. Meanwhile the USD continues to burn, with the US Dollar Index down another -1.4% week-over-week and down for the 14th week out of the last 18 as a credible plan to reduce US debt and deficits remains uncertain.

For more on our positioning on the GBP-USD, see Friday’s Early Look titled “Royal Awareness”.

Matthew Hedrick

Analyst

European Risk Monitor: Currency Strength Ahead of ECB and BoE Decisions - bank1

European Risk Monitor: Currency Strength Ahead of ECB and BoE Decisions - bank2