Morgan Stanley Says Buy Pound Before Minutes
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Investors should bet the pound will strengthen against the dollar before the release of Bank of England minutes, U.K. employment data and the budget this week, according to Morgan Stanley.
Sterling is poised to gain as the March 5-6 minutes may show policy makers believe the recovery has room to quicken due to spare capacity, strategists led by head of global currency strategy Hans Redeker in London wrote in a note to clients. Morgan Stanley recommends investors buy the currency at $1.6650 with a target of $1.6950 and an order to exit the trade if it weakens to $1.6560. The pound was little changed today, while U.K. government bonds fell as tensions surrounding Crimea eased.
“We expect the pound to gain some support during the week,” wrote the analysts at Morgan Stanley, one of the 10 biggest foreign-exchange traders according to a European Institutional Investor Plc survey. “We could see some of the more hawkish views, regarding slack in the economy, starting to become apparent in the minutes, which should provide sterling with some support. The pound could also gain from some safe-haven flows in the expected risk-off environment.”
The pound traded at $1.6645 at 4:18 p.m. London time after advancing to $1.6823 on Feb. 17, the strongest level since November 2009. The U.K. currency declined 0.2 percent to 83.69 pence per euro.
Unemployment Rate
The U.K. jobless rate will stay at 7.2 percent in the three months through January, according to a Bloomberg survey of economists before the data is released on Wednesday. The level has fallen from 7.8 percent a year ago. The central bank led by Governor Mark Carney will release its minutes on the same day.
Chancellor of the Exchequer George Osborne plans to spur construction in his budget by extending the Help-to-Buy program for new homes to 2020 and fostering the expansion of a commuter town southeast of London, according to a Treasury statement yesterday. The budget will also take place on Wednesday.
The pound has weakened against all 16 of its major counterparts this month as the Bank of England’s guidance on the future path of interest rates has weighed against data that suggests the recovery is strengthening.
“We have provided guidance about how we think interest rates will adjust, when the time comes to adjust them; in other words, in a gradual, and to a limited extent,” Carney said at a hearing of the Treasury Committee in London on March 11. “We’re not complacent about the recovery.”
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