UBS upgrades sterling expectations amid dollar dip
UBS has upgraded its expectations for sterling against the dollar due to its fall amid a global trade war kicked off by President Trump
After jumping 1.3 per cent against the dollar immediately after the tariff were announced, sterling has fallen more than two per cent, leaving it 0.7 per cent down over the last month.
It is currently equal to $1.28, compared to a peak of $1.32 the day after the tariffs were unveiled.
The news has come despite the dollar’s poor performance against other currencies. The DXY index, which tracks the value of the dollar against a basket of currencies, has fallen two per cent in the last week.
Japanese yen, euros and Swiss francs have been some of the best performing currencies against the dollar, but sterling has so far failed to deliver.
Despite this, UBS analysts today upgraded their expectations for sterling in the coming months, thanks to the tide finally turning on the strong dollar.
“The US is engaging in a trade war with the whole world at the same time, which is likely to put the US economy under more pressure,” said the UBS analysts.
“We expect the Federal Reserve to cut rates more than previously anticipated, which would undermine the dollar. We expect the dollar to weaken further throughout the year.”
As a result, sterling is expected to be worth $1.31 by midway through 2025, rising to $1.33 for the second half of the year and $1.34 in a year’s time.
This compared to their previous expectations of $1.26 at the end of June, $1.29 at the end of October, finishing the year at $1.31 and eventually reaching $1.33 in March 2026.
“The UK has gotten off lightly compared to some of its peers,” said the UBS analysts in a research note.
“Nevertheless, pound sterling remains a high-beta currency that’s at risk from any global growth slowdown due to increasing trade barriers.”
However, the weakness of the dollar is expected to outweigh these risks, allowing sterling to continue rallying over the course of 2025, though at a slower pace than had been expected, said the analysts.
“A more substantial setback in GBP/USD is increasingly unlikely,” the UBS analysts added.
The UBS analysts also left their euro to sterling forecasts unchanged throughout the rest of the year, while slightly upgraded the euro’s prospects for March 2026 from £0.84 to £0.85.