The investment team at Coutts is increasing its allocation to sterling on expectations the currency will strengthen despite the political risk presented by a potential 'hard Brexit'.
CIO Alan Higgins (pictured) pointed towards "the booming UK economy" and sterling being a mean reverting currency, as it always returns to its historical average after hitting extremes in price, as the reasons why there is value in the sterling-dollar trade.
Sterling slid below $1.20 at the start of this week, the first time since October's 'flash crash' when the UK currency tanked 6% to $1.14 in minutes, as Prime Minister Theresa May signalled a tough stance with the EU.
However, May's clarity in her Brexit speech on Tuesday seemed to boost sterling as it spiked 3% to $1.2382, its best day since the 2008 financial crisis.
Higgins said: "When we combine the valuation level of sterling, which is currently $1.20, together with the political risk, what we see is value in this mean reversion trade."
May announced in her speech the UK will exit the single market, which is predicted to have a major effect on trade and therefore the pound.
Since the UK voted to leave the EU, sterling has tanked 20%, however, Higgins does not see trade as a major halting block for a sterling rebound.
"Trade is not everything as shown when the UK had a trade deficit when the pound was at $2.00. We recognise the political risk with a sterling trade but we predict Brexit will not define the pound's level," he said.
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Comes in on 9 December 2019
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