By Andy Silvester
UBS wonks believe the pound could be trading as high as 1.30 against the US dollar by the end of the year, as the currency continues to recover from Liz Truss and Kwasi Kwarteng’s mini-budget last year.
The pound currently trades at 1.23 against the dollar, a far cry from the 2:1 days of yore.
However UBS economist Dean Turner expects the pound to creep up over the remaining six months of the year, giving British holidaymakers a boost and also providing some much-needed protection for cheap UK firms that have been easy prey for US-led takeovers in recent years.
“Certain factors could make buying the pound a little more enticing. The first of these is the relative attractiveness of the yield on UK assets. The Bank of England took a hawkish turn at its meeting in May, which means another rate hike is likely in June,” Turner wrote in a note circulated Friday afternoon.
Turner contrasted the hawkish stance of the Bank – which is expected to raise interest rates as high as 5.5 per cent after a surprisingly high core inflation readout earlier this week – with the Fed.
The US central bank appears to be coming to the end of its tightening cycle.
Turner also suggested that UK politics had “returned to normal” which would likely see convulsions in the currency come to an end.
“To be sure, holding the pound still comes with risks. But it seems things could finally be moving in the right direction. Against what is likely to be a weak US dollar this year, there is potential upside. We believe the GBPUSD cross could be trading above 1.30 by the end of the year,” he concluded.
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