Sterling to rally to 1.35 against the dollar by year-end – UBS Wealth Management
In a note to its clients, the firm argues that talks of negative rates and no-deal Brexit concerns may only pose short-term risks for the pound with valuations set to take over the cable trade in the bigger picture later in the year.
Adding that while the probability of negative rates has risen, “QE will remain the BOE’s first line of defense” and the central bank should add another £100 billion to that end during the monetary policy meeting later in June.
Meanwhile, the firm is of the view that Brexit fears are “overdone” as the “possibility of the UK leaving the transition period at the end of the year without a deal is relatively low”.
They argue that there will either be a minimal deal achieved or a short extension seen.
On the dollar side of the equation, they view that the dollar’s strength is set to fade given the near-zero rates in the US and the Fed’s easing measures should also weigh on the currency, with the Fed likely to remain expansive longer than the BOE would.
As such, strategists at the firm see the pound as “deeply undervalued, with GBP/USD equilibrium rate three years ahead at 1.53”.
If you’re looking for a flip side argument, HSBC had earlier in the day lowered its own pound forecast from 1.35 to 1.20 citing Brexit risks and a “less healthy” fiscal position.
Meanwhile, the Bloomberg currency forecast table shows that the median consensus is for cable to end the year at 1.26. Here’s a look at some of the other forecasts as well: