Photo: The Sun (UK)
Interesting currency call today from Morgan Stanley analyst Stephen Hull pertaining to the UK pound. Basically, he’s really negative on it. The reasons are basically two-fold, the first being the hung parliament. The second is that with Europe’s problems ring-fenced (maybe), the wolfpack will come to the UK next.The dollar continues to be one of our favourite currencies as the US economy continues to recover strongly. Indeed, yesterday we revised our economic growth forecast for the US up to 3.5% in 2010 from 3.2% previously; we see the UK expanding by 1.0% in 2010. We also revised down our budget deficit projections for the US to 8.5% of GDP in
2010 from 9.2% of GDP previously, and we expect the deficit to fall to 7.3% of GDP in 2011 as the economy looks set to have a more self sustaining recovery with a smaller contribution from the government sector. As can be seen in Exhibit 2, our growth surprise index for the US
shows a bigger growth surprise over the past month than anytime since 2001.
We would sell GBP/USD at 1.4850 with a stop at 1.51 for a move to 1.35. We will add this to our FX portfolio with a 15% weight. Our FX portfolio is up 3.5% so far this year.