Investing.com — UBS expects the pound to rise to $1.38 against the dollar by December, saying large bets against sterling leave room for it to climb.
The pound traded at $1.3430 on Friday, up 0.40% as of 07:38 ET (11:38 GMT).
UBS expects the Bank of England to start a short series of interest rate rises next week and to add another in the first quarter of 2027. It said UK economic data keep beating forecasts and that traders’ futures positions in sterling remain strongly short.
The U.S. Federal Reserve held rates at 3.75%-4% in a 10-2 vote, with only two policymakers backing an immediate hike, UBS said.
Markets are pricing about three more Fed hikes against UBS’s expectation of two, and the bank said lower U.S. rate expectations could weigh on the dollar.
UBS forecasts sterling at $1.39 by March 2027 and $1.41 in the second half of 2027. It sees resistance around $1.38 initially, rising to $1.40-$1.41, and support around $1.33, then $1.32.
The main risks to its forecast are stronger U.S. economic growth or more Federal Reserve rate hikes than UBS expects.
Sterling was on course for a third consecutive weekly gain, having closed at $1.3235 on October 9, $1.3329 on October 16 and $1.3373 on October 23. Friday’s price was also the highest in October, surpassing the previous peak of $1.3421 recorded on October 22.
The euro traded at 0.8339 pounds, down 0.23% from Thursday’s close and at its lowest level this year.
It was down 0.45% over the week and on course for a fifth consecutive weekly decline and a second straight monthly fall, having ended September at 0.8541 pounds.
UBS expects the euro to stay around 0.84 pound, moving to 0.85 over later quarters. It named 0.8350 as the next significant floor and 0.8620 as a ceiling; the euro is now below the lower level.
UBS said concerns over France’s budget and public finances have weighed on the euro. It sees room for the euro to regain ground in 2027 if France passes a budget by year-end.
It expects the European Central Bank to raise rates in December, a move markets almost fully price in. ECB President Christine Lagarde announced this week she will step down early, which UBS expects to have limited impact on the euro.
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