The US dollar is being sold off, and the British pound hits a three-year high. UBS is bullish on the GBP/USD target price, raising it to 1.38
The US dollar is under pressure due to market concerns about US fiscal policy, with the GBP/USD exchange rate breaking 1.35, reaching a three-year high. UBS has raised its target price for GBP/USD to 1.38 and recommends that investors seize buying opportunities on pullbacks. Despite rising US Treasury yields, the dollar index has fallen, reflecting market worries about the sustainability of US debt. UBS predicts that the Bank of England will cut interest rates quarterly, believing this will provide structural support for the pound, while the UK's trade advantages will attract foreign capital inflows
According to the Zhitong Finance APP, due to rising concerns in the market regarding the direction of U.S. fiscal policy, the U.S. dollar index has come under pressure again this week, with funds shifting towards risk assets supporting the British pound's continued strength. As of the market close on May 27, the GBP/USD exchange rate strongly broke through the 1.35 level, reaching a three-year high.
UBS Group's foreign exchange strategy team noted in their latest report that the upside potential for the British pound has not yet been fully released, suggesting that investors take advantage of pullback buying opportunities. The institution clearly set 1.3390 as a key accumulation point and raised the GBP/USD target price to 1.38, indicating a potential increase of over 2% from the current price level.
UBS analysis pointed out that the current movement of the U.S. dollar is showing a rare divergence from U.S. Treasury yields: despite the continuous rise in the 10-year U.S. Treasury yield, the dollar index is declining against the trend. From the traditional interest rate differential logic, the dollar should have received support, but concerns about the sustainability of U.S. debt are pushing up risk premiums, becoming a core factor suppressing the dollar's performance.
"While we believe this divergence will eventually correct, it is more likely to occur through a decline in U.S. Treasury yields rather than the dollar gaining new upward momentum," the report stated.
Regarding the future of the British pound, UBS maintains its forecast that the Bank of England will cut interest rates on a quarterly basis and emphasizes that this policy path will provide structural support for the pound. It is worth noting that the UK, as the first major economy to reach a free trade agreement with the U.S., is expected to continue attracting foreign investment due to its unique trade advantages, which will be a positive factor for the pound
