ExchangeRates.org.uk - Strong UK yields and gradual Bank of England rate cuts are expected to support the Pound, despite risks from US tariffs and budget challenges.The Pound to Dollar (GBP/USD) exchange rate has posted sharp losses after the US Presidential election with 6-month lows just below 1.26 before a slight recovery.
UBS considers that the liquidation of long Sterling positions has been a key element driving Pound losses.
Looking at overall fundamentals, the bank has lowered its Pound forecasts, but expects yields will still be supportive with an end-2025 projection of 1.35.
The bank considers that the US Presidential election outcome has changed the dollar outlook.
It expects that a Trump Administration will impose tariffs, damaging the global economy, while tax cuts will be inflationary and curb potential Federal Reserve interest rate cuts.
It notes that the UK will be at risk from tariffs, although it also considers that the dominance of services-sector exports will limit the UK impact and provide some currency protection.
UBS has not changed its overall positive Pound outlook.
Despite some fundamental downside risks from the budget, it expects that a key element will be that interest rates will stay higher for longer.
It forecasts that the Bank of England will hold rates at 4.75% in December with only gradual rate cuts next year.
In this context, overall yield considerations will support the Pound, especially with global central banks continuing to cut rates.
This content was originally published on ExchangeRates.org.uk