Currency investors should consider selling GBP/JPY this week, advises Credit Suisse in its weekly FX pick to clients.
Rationale: "The probability is still skewed towards further risk-off price action in our view, with JPY likely to benefit the most in FX (especially when alternative traditional 'safe havens' like CHF no longer seem to be behaving in such a manner).
Meanwhile we expect two headlines to weigh on sterling.
First, we believe the chances are increasing that an EU referendum could be held as early as late June (although no date has been confirmed).
Second, we expect the Bank of England to remain dovish with just 1 member voting for a hike, and the minutes to reflect lackluster wage growth, falling oil prices and downwards to nominal/real GDP and weak survey data. Rates markets already suggest expectations are priced for a dovish MPC, but we continue to see sterling as fundamentally overvalued," CS says as a rationale behind this call.
Risks: "The risks to such a trade would be a recovery in Chinese sentiment and the Bank of England sounding more balanced or upbeat on recent data," CS adds.
