In a recent analysis by UBS, the financial giant has expressed a bullish outlook for the British Pound against the US Dollar, forecasting significant gains for the GBP/USD exchange rate over the coming years. The Pound has shown resilience, recently rallying to near 1.3500 after dipping to a 1-month low, driven by strong buying support and a less favorable sentiment toward the Dollar.
UBS projects the GBP/USD pair to reach 1.38 by the end of 2025, with an even more ambitious target of 1.40 set for 2026. This optimistic forecast hinges on the Pound's underlying strength and the potential for the US Dollar to weaken as global economic conditions shift.
The analysis also highlights that the recent upward movement in the EUR/GBP pair suggests the Pound's rise is influenced more by Dollar dynamics than inherent Sterling strength. Despite a slowing UK labor market, UBS believes the Bank of England will adopt a gradual approach to monetary policy easing, given persistent inflationary pressures.
Furthermore, UBS notes a consistent trend of Pound buying support in currency markets, which has bolstered its position against a backdrop of defensive Dollar demand. This trend could be a key driver in achieving the forecasted targets if sustained.
However, the forecast is not without caveats. UBS warns that a fiscal setback or a deeper global economic slowdown could derail the Pound's trajectory. Investors are advised to monitor these risks closely while considering the potential for Sterling gains.
For now, the outlook remains positive, with UBS maintaining a strong conviction in the Pound's ability to outperform the Dollar in the medium to long term. Market participants are keenly watching upcoming economic data and policy decisions for further cues.
Alfred Lee
