Foreign exchange analysts at UBS maintain a constructive outlook for the Pound Sterling, arguing that elevated UK inflation pressures and relatively hawkish Bank of England policy should continue to support sterling against lower-yielding currencies.
“We maintain our bias for GBP strength.”
Thursday’s session saw the Pound to Euro (GBP/EUR) exchange rate strengthen to 1.1576, while the Pound to Dollar (GBP/USD) exchange rate advanced to 1.3626 as sterling continued to outperform amid firm Bank of England rate expectations.
The bank notes that markets continue to price further Bank of England tightening, with UK yields remaining supportive for the currency despite growing economic and political uncertainties.
At the same time, UBS warns that domestic political developments could become an increasing source of volatility for the Pound in coming weeks, particularly ahead of local elections.
“Political clouds in the UK are set to serve as a distraction for GBP markets this spring.”
The bank highlights concerns surrounding Prime Minister Starmer’s political position and the risk that weak election results for Labour could undermine confidence in the government.
Even so, UBS believes sterling should remain relatively well supported near-term, particularly if UK inflation remains elevated and the Bank of England maintains a cautious stance towards rate cuts.
