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The British pound is rising amid the "American-French turmoil"?! Europe's largest asset management company joins the bullish camp

2024-07-24

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Amundi SA turned bullish on the pound on Tuesday, despite a warning from JPMorgan Chase & Co. that sterling positions appear overextended, as a global rally led by the bank has turned bearish to bullish, even as JPMorgan Chase & Co. warned that positions on the currency appear overextended.

Amundi, Europe's largest asset manager with $2.3 trillion in assets under management, has shifted to overweight in recent months and expects further gains after the pound hit a one-year high. Andreas Koenig, the firm's global head of foreign exchange, is targeting a rise in the pound/dollar rate to $1.35 by the end of the year from around $1.29 now.

Amundi joins a rush to buy sterling at banks such as Goldman Sachs Group Inc. that predict the pound will rise on brighter economic prospects and hopes for political stability after Prime Minister Keir Starmer's Labour Party won a landslide victory. The view that the Bank of England will cut interest rates less than other central banks also provided support for the pound, which is expected to post its best monthly performance since November.

"With an improving economic environment and a relatively stable government, there are a lot of reasons to support the pound," Koenig said. "It may be less risky and could be another option for diversification in a portfolio, which is good for investors."

The recent calm in the UK, in contrast to the dramatic changes in US politics ahead of the US presidential election and the ongoing political crisis in France, has pushed the pound/dollar exchange rate above $1.30 for the first time in a year. On Tuesday, the pound/dollar exchange rate was basically flat at $1.2925, up 1.5% since the beginning of the year, outperforming all Group of Ten (G10) currencies.

GBP/EUR also reached its highest level since August 2022 at 0.84 - and Amundi expects the pound to eventually rise further to 0.82.

Last year, Amundi shorted the pound, believing that the pound could fall to $1.21 as the country was heading into recession. Now, Koenig said its overweight position was a "core conviction."

Broad optimism about British assets has driven bullish bets on the pound to an all-time high, according to Commodity Futures Trading Commission data going back to 1999. JPMorgan Chase & Co. warned this week that record bets pose a short-term risk to the pound, but it still predicts it will reach $1.35 by March next year.

For Koenig, the pound may still be undervalued as investors reduce exposure to the U.K. in the wake of Brexit. He said any pullback would be an opportunity to add to positions in sterling against the dollar and the euro, especially if the Bank of England starts cutting rates. Traders are betting that could happen in September.

"A correction at the start of an easing cycle could be a good opportunity to buy," Koenig said. "We're already at $1.30, but if you look at the long-term chart, it's still relatively low."

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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The British pound is rising amid the "American-French turmoil"?! Europe's largest asset management company joins the bullish camp

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