Investing.com – The pound sterling has been struggling lately, pressured by concerns about Britain’s financial position. UBS sees potential for further short-term losses, but thinks budget concerns have been addressed and gains are likely to come later this year.
At 06:15 ET (11:15 GMT), it rose 0.2% to $1.2201, but has fallen more than 3% over the past month in the wake of the UK government bond turmoil as yields soared.
The recent rise in UK government bond yields has been compared in the media to the ‘Truss moment’, when Liz Truss became Britain’s shortest-serving Prime Minister when she was forced to resign after just 49 days in office when financing costs soared in the wake of the British government bond collapse. her government’s mini-budget.
However, UBS claims that comparisons with the 2022 ‘Truss saga’ are exaggerated.
“We don’t expect the recent market swings in Britain to result in a situation similar to the turmoil in 2022. Pension regulation is in a better place and policy makers are (hopefully) well aware of the risks,” add analysts at the Swiss bank in a note dated January 17.
With major risks looming in the coming weeks that could push US yields even higher, the bank cannot rule out that the GBP/USD will break below $1.20.
However, this is not our base case and while we are happy to sell on the upside, we prefer to stay on the sidelines in GBP/USD for now as we are particularly wary of the risks of Trump’s inauguration.
“We expect GBP/USD to recoup losses later this year as we see USD strength weakening, but it will take some time and possibly pain to get there,” UBS added.
The Swiss bank expects the GBP/USD to rise to $1.29 by the end of the year.
