Very nice approach
Deutsche Bank - "As we look forward at different multi-year scenarios, GBP is subject to some ‘smile’ considerations, doing worst in fat tail risk scenarios.
Scenario 1: If global growth is much weaker than expected, the rebalancing of a still overvalued UK housing sector (at least relative to the US) will create significant additional downside pressure on cable. This fits with a broader view that the because the US is more advanced than most countries in working through housing/household imbalances, the USD will have a very good next recession!
Scenario 2. Growth is significantly stronger than expected. In this situation, the expectation would be that the Fed will tighten before the BOE on the basis that cumulative growth has left a smaller negative output gap. However, stubborn inflation pressures, slower potential growth and a larger positive UK output gap in 2007 (if only we knew this at the time), all suggest that the BOE will not be that far behind the Fed. Nonetheless, this would tend to fit with a positive USD view.
Scenario 3: The scenario where the GBP does best is the world we are in currently, where US/Global growth is strong enough to keep risk bid, and cable tracks as a low beta EUR/USD. In this case, GBP bears, should gain more traction on EUR/GBP. Even in this scenario, UK fundamentals are not making a case for independent GBP strength over a period longer than 6 months, given the deterioration in the UK trade accounts and the slow corrosive implications for the currency."