Why we remain long EUR/GBP? - Nomura

Analysts at Nomura explained that the past few months have seen post-Brexit data euphoria reverse course, and the declining negative real wage consumption squeeze is now taking hold. 

Key Quotes:

"Market economists have been expecting this impact from the result of the referendum for over a year now, and the path of data surprises so far vindicates their view. 

Inflation is mostly owing to currency moves rather than a growing underlying demand, growth is faltering, while the rest of the global economy is picking up and wages are yet to accelerate. 

The UK data have been following the market-consensus Brexit narrative, but seemingly occurred with a lag. The data in the first few months after the vote positively surprised, but GBP failed to rally meaningfully. 

Any bounce in GBP after a good data release was often used to sell at better levels, hence the weak beta in the 10-minute market reactions after Theresa May’s “Hard Brexit” Conservatives conference speech. This is no longer the case after BoE Governor Mark Carney’s Sintra conference comments and in general the pound has followed the path of data more linearly. 

It is also not lost on us that the market has found it easier to believe in the downturn in the UK as a result of the referendum result rather than the more optimistic story when the data surprises were turning positive in its aftermath."