After sliding to 4-week lows below 1.1450 last week, the Pound to Euro (GBP/EUR) exchange rate has rallied to near 1.15 following the announcement of a 2-week cease-fire between the US and Iran.
Nomura is still backing a slide to 1.1170 amid a shift in underlying yield spreads away from the Pound.
Sterling has gained short-term relief from Iran developments with a surge in risk appetite with the FTSE 100 index posting a 2.5% gain on the day.
The Euro and Pound will both gain some economic relief from the decline in energy prices, although gas and oil prices are still well above pre-war levels.
There has been a shift in Bank of England (BoE) expectations with traders now expecting one rate hike this year compared with a peak of three hikes as energy prices surged last month.
Nomura is still backing no move from the BoE as a weaker economy and a lack of pricing power keeps wages growth and inflation in check.
In contrast, Nomura considers that the ECB is more likely to push ahead with higher interest rates in order to keep underlying inflation under control.
