Morgan Stanley Ends Bullish GBP Call, Sees Limited Upside Potential

Friday Nov 28 2025 00:00

Duration

2 min

  1. 1. Morgan Stanley Retracts Optimistic GBP Forecast

  2. 1.1 Diminishing Appeal of the GBP

  3. 1.2 Temporary Surge Followed by Expected Decline

  4. 1.3 Impact of Interest Rate Cuts on the Long Term

  5. 1.4 Growth as a Key Catalyst for the GBP

  6. 1.5 Jefferies Anticipates Continued GBP Weakness

Morgan Stanley Retracts Optimistic GBP Forecast

Morgan Stanley has announced the closure of its bullish recommendation on the British pound, citing that the currency has likely exhausted most of its near-term positive catalysts. Analysts at the bank, including David Adams, noted in a Thursday report that while the pound had room for a quick rebound following Wednesday's UK budget announcement, the rally is likely to fade.

Diminishing Appeal of the GBP

The analysts explained that the pound's appeal versus the US dollar has diminished, as its correlation with the stock market has dropped to zero, with a lack of positive domestic drivers at present. They wrote, "With the budget now in the rearview mirror, we think the pound has, at best, one last hurrah left in it, namely the unwinding of budget hedge trades. But at the end of the day, there are few compelling reasons to hold long GBP/USD positions."

Temporary Surge Followed by Expected Decline

The pound experienced a surge on Wednesday, surpassing the $1.32 level, after the budget signaled a more restrained approach to borrowing by the government. However, Morgan Stanley anticipates that this surge will be temporary.

Impact of Interest Rate Cuts on the Long Term

In the long term, Morgan Stanley believes that the Bank of England's rate cuts could help alleviate negative factors affecting the pound, as easing monetary policy could create more fiscal space. Additionally, lower borrowing costs could boost household spending and business activity.

Growth as a Key Catalyst for the GBP

The analysts wrote, "Perhaps as we approach the tail end of the BoE's easing cycle, growth will replace carry as a key currency catalyst. And if rate cuts help stimulate growth prospects, then there would be considerable scope for a shift in what has been a pound-unfriendly market sentiment."

Jefferies Anticipates Continued GBP Weakness

Similarly, Jefferies anticipates that the pound's rise will be short-lived and sees room for further weakness. Economist Modupe Adegbembo at the bank wrote in a report: "Looking ahead, we think that persistent fiscal fragility makes yield curve steepener trades attractive, as markets continue to price in risks of fiscal slippage and structural imbalances."

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Written by:

Noah Lee

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