GBP/USD: Pound had become one of the most undervalued currencies according to valuation models – MUFG

Recent price action and positioning challenges the negative sentiment around the British pound, explained currency analysts at MUFG Bank. 

Key Quotes:

“The pound has been one of the best performing currencies over the past week which has helped to lift cable back towards the 200-day moving average at close to the 1.2700-level. Better price action in the near-term marks a reversal for the pound after it was the worst performing G10 currency in May and June. It now remains to be seen whether cable can extend its advance beyond the 200-day moving average which has capped upside since the COVID crisis struck in March.”

“In a further bullish technical development, EUR/GBP has fallen back below the 0.9000-level which has provided strong resistance since the Brexit referendum in 2016. In the absence of clear fundamental drivers behind the pound’s recent rebound, it may reflect more a correction of overly pessimistic pound sentiment and positioning. The pound had become one of the most undervalued currencies according to valuation models.”