Image © Adobe Images
Pound sterling's next big directional move risks a fall below 1.0 versus the euro when the next UK crisis swings around.
Analysis from market veteran Kit Juckes shows it to be significantly overvalued on an important metric: purchasing power parity (PPP).
This is where a currency's fundamental value is determined by what it can purchase in its home country versus another.
The idea is that the currency will always adjust higher or lower to ensure it ultimately has the same purchasing power in both countries.
Jucke's heads up Société Générale's foreign exchange analysis and strategy function.
"The pound is getting painfully overvalued relative to purchasing power parity (PPP)" he says.
Sure, he acknowledges, PPP "means very little".
For example, the OECD measure of PPP says the EUR/USD would be at 1.50, and USD/JPY down at 95.
GBP/USD should be at 1.47.
Moves to these PPP fair value levels are highly unlikely in the foreseeable future.
But Juckes thinks PPP has a greater relevance for EUR/GBP, where PPP is above 1.0.
(i.e. the pound to euro has a fairer value below parity).
"The gradual rise in PPP fair value for EUR/GBP, from just under 0.90 in 2000 to over parity now, is a problem", warns Juckes.
"The gap was slightly bigger than this in the early 2000s and in the wake of the EUR collapse in 2015, but in both cases, what followed was a significant correction as GBP fell against both EUR and USD."
It's worth noting, GBP/EUR hasn't reverted to pre-crisis levels, suggesting a degree of respect for PPP fair value.
"In those instances, the drivers of GBP weakness were the Great Financial Crisis and the Brexit vote, but the UK is only one political calamity away from seeing EUR/GBP trade above parity," he adds.
Something to think about, given the increasingly concerning grasp the current PM and his finance boss have on the UK economy and their party.