With short GBP positioning stretched according to our metrics (-34 on a scale of +/-50) and the currency trading very cheap to our short-, medium- and long-term models we see scope for this week’s short squeeze in GBPUSD to continue. From a longer-term perspective, comments from Bank of England Governor Carney are providing a catalyst. He noted limits to the BOE’s willingness to tolerate above-target inflation. With the BOE’s projections now looking for inflation to stay above target until 2020, our economists have changed forecasts and no longer expect further BOE easing. The weakness of the GBP is an important factor driving BOE inflation expectations and the central bank’s message is a reminder of how extreme deviations from long-term currency fair value can drive policy changes which ultimately help restore equilibrium. We are positioned for medium term GBP recovery via a six month GBPUSD call spread recommendation. We initiated a long GBPUSD recommendation (call spread at 1.2285 targeting abover 1.30) ten days ago which is consistent with our medium-term BNP Paribas CLEER™ model which signals 1.33-35 on GBPUSD.