Investing.com – Sterling has struggled recently, offset by concerns about the UK's financial situation. UBS sees the potential for further losses in the long term, but believes the fiscal concerns have been ruled out and gains are likely later in the year.
At 06:15 ET (11:15 GMT), it was up 0.2% at $1.2201, but has fallen more than 3% over the past month due to turmoil in UK gilts as yields up
The recent rise in UK gilt yields has been compared in the media to the “Truss moment”, when Liz Truss became the UK's shortest Prime Minister as she was forced to resign after only 49 days in office when borrowing costs subsequently rose. her government's mini-budget.
However, UBS insists that comparisons with the 2022 “Truss saga” are too many.
“We do not expect the recent market movements in the UK to lead to a situation similar to the turmoil of 2022. Pension rules are in a better place and policymakers are (hopefully) well aware of the risks,” said analysts at the Swiss bank, in a note dated January 17.
With major risks lined up in the coming weeks that could push US yields even higher, the bank cannot rule out GBP/USD breaking below $1.20.
However, this is not our underlying issue and while we like to sell upside, we prefer to stay on the sidelines in GBP/USD at this time, as we are particularly cautious about Trump's initial threats.
“We expect GBP/USD to recover losses later in the year as we see USD strength decline, but it will take some time and possibly pain to get there,” UBS said.
The Swiss bank sees GBP/USD climbing to $1.29 by the end of the year.
