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Pound Sterling is a buy against the Dollar say strategists at Danske Bank (CSE:DANSKE).
"We see potential for a temporary decline in the broad USD," says Kirstine Kundby-Nielsen, FX Strategist at Danske Bank.
She says USD weakness will be driven by a combination of its overbought status, bearish seasonal factors (December typically sees the USD fall), and the likelihood of a Federal Reserve rate cut in December.
Betting against the U.S. Dollar should be done with Pound Sterling, which Kundby-Nielsen thinks can benefit from continued UK growth momentum and a hawkish Bank of England.
The Bank is expected to skip another rate cut at its December policy meeting, whereas both the Federal Reserve and European Central Bank are likely to cut their base rates.
The call comes amidst a stabilisation in the Pound to Dollar exchange rate (GBP/USD) which follows a sharp drawdown in the October-November period.
Positive U.S. data surprises combined with Donald Trump winning the U.S. presidency to spark a 4.80% decline in GBP/USD over this two-month timeframe.
However, December sees GBP/USD forming a tentative base above 1.25, although a meaningful rebound is yet to shape up.
Nevertheless, Danske Bank thinks that rebound is incoming.
"We believe the cross is in store for a rebound in the near term, driven by emerging downside risks to the cyclical US growth outlook, an impending rate cut from the Fed and a continued hawkish BoE," says Kundby-Nielsen.
Danske Bank also thinks GBP is better insulated against U.S. tariff concerns amid the US-UK relationship and the composition of British exports to the U.S.
The majority of the UK's trade with the U.S. is in services, which tend to fall outside of the scope of tariffs. Indeed, the U.S. boasts a rare positive trade balance in goods against the UK.
"We recommend a tactical long position in GBP/USD spot," says Kundby-Nielsen.
Strategists are running a soft target of 1.3300 for the trade.
An original version of this article can be viewed at Pound Sterling Live