Bloomberg News

Morgan Stanley Recommends Selling Pound Versus Dollar on Rallies

October 03, 2011

Oct. 3 (Bloomberg) -- Investors should sell the pound versus the dollar, betting it will weaken to $1.48, according to Morgan Stanley.

The pound may weaken as the “vulnerable” U.K. economy slows and the Bank of England resumes its quantitative-easing policy, London-based currency strategist Tim Davis wrote in an e-mailed note today. Investors should sell sterling if it climbs to $1.59, Davis wrote. The bank recommends exiting the trade if the U.K. currency strengthens to $1.62.

Nine of 30 economists surveyed by Bloomberg predict the Bank of England will increase its asset-purchase target by at least 50 billion pounds ($78 billion) from 200 billion pounds on Oct. 6. The central bank will keep its main interest rate at a record low 0.5 percent, according to all 53 respondents to a separate survey.

“With the dual supports of stable monetary and fiscal policy under attack from slowing domestic and global growth and with pound-dollar lightly positioned, we believe that there is good value in selling the pair on rallies,” Davis wrote. “We may see a good opportunity to enter short pound-dollar positions on a potential relief rally on Wednesday if the Bank of England does not announce QE.”

The pound declined 0.4 percent to $1.5522 at 12:23 p.m. in London. It weakened 2.9 percent against the greenback in the third quarter.

--Editors: Matthew Brown, Mark McCord

To contact the reporter on this story: Lucy Meakin in London at lmeakin1@bloomberg.net.

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net.


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