British Pound Favoured by Strategists at UBS
- Written by: Gary Howes
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Thomas Flury, Strategist at UBS, has issued a strategic recommendation for a long trade on the British pound against the Swiss franc, targetting a move to 1.15.
This recommendation is backed by strong technical indicators and solid fundamental support, according to Flury.
Flury highlights the attractive valuation of pound sterling against the Swiss franc, attributing its previous downward pressure to political uncertainty and perceived loose monetary policy in the UK.
However, the strategist believes that the pound's fortunes have turned, with political stability restored and the Bank of England (BoE) demonstrating a stronger commitment to combatting inflation.
Flury notes that these positive shifts have not yet been fully reflected in the pound's valuation.
The timing of the trade aligns with the upcoming central bank meetings in the UK and Switzerland, both scheduled for June 22nd. Flury expects the trade to perform well in the run-up to these key events.
Looking at the broader picture, the market is anticipating approximately 100 basis points of interest rate hikes from the Bank of England throughout the year, with the next meeting scheduled for June 22nd.
Flury emphasizes the BoE's determination to address inflation, which has proven to be more persistent compared to other G10 countries.
The pound has tracked UK bond yields higher after the ONS reported headline UK CPI printed at 8.7% in the year to April, down from 10.1% in March, but well above the 8.3% reading the market was looking for and above the Bank of England's forecast for 8.4%.
The Bank of England has already raised interest rates to 4.5% in its efforts to bring inflation back under control, but the evidence presented by the ONS on May 24 suggests policymakers at Threadneedle Street might have massively underestimated inflationary pressures.
A particular worry will be services inflation, which rose from 6.6% to 6.9%, as the Bank has emphasised it will watch this figure closely because it gives clues as to how domestic firms and workers are contributing to inflation pressures.
