Morgan Stanley has decided to inject some optimism into the British market. The major US bank has predicted a historic leap for the pound sterling. The bank expects that following the UK’s November budget — and especially after Chancellor Rachel Reeves’ speech on November 26 — the British pound will remember its glory days and climb to $1.45 by mid-2026. For reference, such levels were last seen before Brexit.
Morgan Stanley recommends buying the pound sterling on dips and adding up long positions. David Adams, Head of G10 FX Strategy, explained that it is the perfect time to buy what everyone else is rushing to sell on the back of fiscal concerns, swaps, carry, and the dollar’s slowdown.
Meanwhile, the pound has already been performing well: it has gained 7% against the US dollar since the start of the year, hitting a four-year high in July before slightly losing momentum. One possible reason is that the dollar has finally halted its decline. Besides, renewed jitters around the UK budget have made traders nervous once again — no one wants the experience of autumn 2022, when the pound and gilts rode a financial rollercoaster.
However, many banks are less optimistic. The consensus among strategists is that the pound will reach only $1.38 next year. But Adams maintains a firmly bullish stance. He says markets always love to scare themselves with UK budget headlines, traders rush to open short positions and then close them, allowing the pound to recover lost ground.
In the meantime, Rachel Reeves is preparing to unveil her plans to reduce the deficit, estimated at around £35 billion. Investors are on the alert, especially amid rumors that the government might scrap the family benefits cap — a move that adds further uncertainty to the UK’s fiscal outlook.
Analysts warn traders of high volatility in the coming weeks. Therefore, some traders prefer to stay away from the market, while others are cautiously increasing their bets. Still, Morgan Stanley believes that despite temporary challenges, the pound sterling often emerges from tough situations stronger. As traders like to say, patience and equanimity pay off.
