Is the British Pound about to rise? Europe's largest asset manager also joins the bullish camp!

Despite warnings from Morgan Stanley that long positions in the pound are too high, its widespread rally has turned Amundi SA from short to long on the pound. The largest asset management company in Europe, managing $2.3 trillion in assets, has shifted to increasing its holdings in the pound over the past few months and expects the pound to rise further after hitting a one-year high. The company's global foreign exchange director, Andreas Koenig, targets a high of 1.35 for the pound against the dollar by the end of the year, with the currency currently trading around 1.29. Amundi expects the pound against the dollar to continue to rise to 1.35 Amundi has joined a number of banks, including Goldman Sachs, in buying up pounds. With the Labour Party led by Prime Minister Keir Starmer winning by an overwhelming margin, these banks expect the pound to rise due to brighter economic prospects in the UK and hopes for political stability. The view that the Bank of England's interest rate cut will be smaller than other central banks also provides support, making the pound likely to have its best performance since November this month. Koenig said, "The economic environment (in the UK) has improved, the government is relatively stable, so there are many reasons to support the pound. It may be lower risk and may be a diversified choice in the portfolio, all of which are favorable." In stark contrast to the calm in UK politics, the US has seen dramatic twists and turns in the run-up to the presidential election, while France faces ongoing political crises. Since the beginning of the year, the pound has risen by nearly 1.5%, surpassing all G10 currencies against the dollar, breaking through 1.30 last week. The pound against the euro is the strongest since August 2022, at around 1 euro to 0.84 pounds, and Amundi believes it will eventually rise further to 0.82. Last year, Amundi was bearish on the pound, believing that as the UK economy fell into recession, the pound against the dollar could fall to 1.21. Now, Koenig says that increasing holdings in the pound is his "core belief." Widespread optimism for UK assets has driven long positions in the pound to historic highs, a risk that Morgan Stanley sees for the pound in the near term. Nevertheless, Morgan Stanley maintains its forecast that the pound against the dollar will continue its recent rally, reaching 1.35 by March next year. In Koenig's view, the pound may be undervalued, as investors have reduced their investments in UK assets since Brexit. He said that any pullback is an opportunity for him to increase his long positions in the pound against the dollar and euro, especially when the Bank of England starts cutting interest rates. Traders are betting that this could happen in September. Koenig said, "A pullback due to the easing cycle may be a good buying opportunity, the pound against the dollar has reached around 1.30, but if you look at the long-term chart, it is still relatively low." ”