Yahoo Finance UBS tells investors: avoid the pound
UBS has joined other investment advisers in telling clients to steer clear of the pound for now, arguing that Brexit uncertainty presents too much risk.
“We don’t think now is the time to buy sterling,” analysts Daniel Trum and Gaétan Peroux said in a note to clients last week. “Hedging GBP risk is still preferable. Brexit uncertainty remains the key downside risk to GBP/USD over the next three months.”
UBS said that sterling could move higher against the dollar and euro over the longer-term, but said that the uncertainty surrounding Brexit meant there was too big a risk of the pound falling further in the short-term to recommend investing now.
“Due to Brexit uncertainty, the situation is very much in flux,” the bank said. “An agreement on a transition deal could quickly lift the upper limit toward $1.40. In the case of a cliff-edge Brexit, a lower limit should be around $1.15 given sterling’s already cheap valuation.”
The euro could climb to £0.94 or fall as low as £0.84 depending on the same range of outcomes, the analysts said.
UBS joins a growing list of banks and investment advisors who have urged caution when it comes to trading the pound. Citi reportedly told its private banking clients not to trade the pound during last week’s vote on Theresa May’s Brexit deal and Neil Wilson, the chief market analyst at trading platform Markets.com, told clients to treat sterling with “extreme caution” ahead of the vote.
The pound has been highly sensitive to political developments since the Brexit vote in June 2016. With the Brexit deadline fast approaching and no clear resolution in sight, many analysts fear the currency could suffer whipsaw price movements and heightened volatility.
The advice from analysts has been reflects in the pound’s price. Sterling has been largely trading in a tight range between $1.27-1.28 over the last month, with investors unwilling to make large, price-moving bets on the future of the pound either way.
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Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.
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