UBS Sees Sterling Surge to $1.40 by Year-End Amid Easing UK Risks

UBS strategists Constantin Bolz and Dominic Schnider are forecasting a significant gain for the Pound Sterling, citing easing UK political risks as a key factor. According to their analysis, the GBP/USD exchange rate could reach 1.40 by December 2026, a notable increase from its current level.

The bank's strategists argue that one of the Pound's biggest domestic obstacles is starting to change direction, shifting from a headwind to a potential tailwind. This shift in UK politics has led to a market that remains relatively light on Sterling exposure, providing scope for further short-covering if investors become more comfortable with the outlook.

UBS identifies support near 1.33 and then 1.32 as levels that would come back into focus if US rate expectations reverse or UK political sentiment deteriorates. However, the combination of fading Fed-hike risk and under-owned Pound Sterling gives the upside case more traction, making a convincing break through 1.38 necessary to make 1.40 the market's immediate target.